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Before Washington Mutual Bank, FA (WaMu) was seized by federal banking regulators in 2008, it made many residential real estate loans and used those loans as collateral for mortgage-backed securities.1

Many of the loans went into default, which led to nonjudicial foreclosure proceedings.

Some of the foreclosures generated lawsuits, which raised a wide variety of claims.

The allegations that the instant case shares with some of the other lawsuits are that

(1) documents related to the foreclosure contained forged signatures of Deborah Brignac and (2) the foreclosing entity was not the true owner of the loan because its chain of ownership had been broken by a defective transfer of the loan to the securitized trust established for the mortgage-backed securities. Here, the specific defect alleged is that the attempted transfers were made after the closing date of the securitized trust holding the pooled mortgages and therefore the transfers were ineffective.

In this appeal, the borrower contends the trial court erred by sustaining defendants’ demurrer as to all of his causes of action attacking the nonjudicial foreclosure. We conclude that, although the borrower’s allegations are somewhat confusing and may contain contradictions, he nonetheless has stated a wrongful 2

foreclosure claim under the lenient standards applied to demurrers.We conclude that a borrower may challenge the securitized trust’s chain of ownership by alleging the attempts to transfer the deed of trust to the securitized trust (which was formed under New York law) occurred after the trust’s closing date.Transfers that violate the terms of the trust instrument are void under New York trust law, and borrowers have standing to challenge void assignments of their loans even though they are not a party to, or a third party beneficiary of, the assignment agreement.

H. Causes of Action Stated Based on the foregoing, we conclude that Glaski’s fourth cause of action has stated a claim for wrongful foreclosure. It follows that Glaski also has stated claims for quiet title (third cause of action), declaratory relief (fifth cause of action), cancellation of instruments (eighth cause of action), and unfair business practices under Business and Professions Code section 17200 (ninth cause of action).

We therefore reverse the judgment of dismissal and remand for further proceedings.

CERTIFIED FOR PUBLICATION

OPINION

FRANSON, J.

INTRODUCTION

Before Washington Mutual Bank, FA (WaMu) was seized by federal banking regulators in 2008, it made many residential real estate loans and used those loans as collateral for mortgage-backed securities.[1] Many of the loans went into default, which led to nonjudicial foreclosure proceedings. Some of the foreclosures generated lawsuits, which raised a wide variety of claims. The allegations that the instant case shares with some of the other lawsuits are that (1) documents related to the foreclosure contained forged signatures of Deborah Brignac and (2) the foreclosing entity was not the true owner of the loan because its chain of ownership had been broken by a defective transfer of the loan to the securitized trust established for the mortgage-backed securities. Here, the specific defect alleged is that the attempted transfers were made after the closing date of the securitized trust holding the pooled mortgages and therefore the transfers were ineffective.

In this appeal, the borrower contends the trial court erred by sustaining defendants’ demurrer as to all of his causes of action attacking the nonjudicial foreclosure. We conclude that, although the borrower’s allegations are somewhat confusing and may contain contradictions, he nonetheless has stated a wrongful foreclosure claim under the lenient standards applied to demurrers. We conclude that a borrower may challenge the securitized trust’s chain of ownership by alleging the attempts to transfer the deed of trust to the securitized trust (which was formed under New York law) occurred after the trust’s closing date. Transfers that violate the terms of the trust instrument are void under New York trust law, and borrowers have standing to challenge void assignments of their loans even though they are not a party to, or a third party beneficiary of, the assignment agreement.

We therefore reverse the judgment of dismissal and remand for further proceedings.

FACTS

The Loan

Thomas A. Glaski, a resident of Fresno County, is the plaintiff and appellant in this lawsuit. The operative second amended complaint (SAC) alleges the following: In July 2005, Glaski purchased a home in Fresno for $812,000 (the Property). To finance the purchase, Glaski obtained a $650,000 loan from WaMu. Initial monthly payments were approximately $1,700. Glaski executed a promissory note and a deed of trust that granted WaMu a security interest in the Property (the Glaski deed of trust). Both documents were dated July 6, 2005. The Glaski deed of trust identified WaMu as the lender and the beneficiary, defendant California Reconveyance Company (California Reconveyance) as the trustee, and Glaski as the borrower.

Paragraph 20 of the Glaski deed of trust contained the traditional terms of a deed of trust and states that the note, together with the deed of trust, can be sold one or more times without prior notice to the borrower. In this case, a number of transfers purportedly occurred. The validity of attempts to transfer Glaski’s note and deed of trust to a securitized trust is a fundamental issue in this appeal.

Paragraph 22—another provision typical of deeds of trust—sets forth the remedies available to the lender in the event of a default. Those remedies include (1) the lender’s right to accelerate the debt after notice to the borrower and (2) the lender’s right to “invoke the power of sale” after the borrower has been given written notice of default and of the lender’s election to cause the property to be sold. Thus, under the Glaski deed of trust, it is the lender-beneficiary who decides whether to pursue nonjudicial foreclosure in the event of an uncured default by the borrower. The trustee implements the lender-beneficiary’s decision by conducting the nonjudicial foreclosure.[2]

Glaski’s loan had an adjustable interest rate, which caused his monthly loan payment to increase to $1,900 in August 2006 and to $2,100 in August 2007. In August 2008, Glaski attempted to work with WaMu’s loan modification department to obtain a modification of the loan. There is no dispute that Glaski defaulted on the loan by failing to make the monthly installment payments.

Creation of the WaMu Securitized Trust

In late 2005, the WaMu Mortgage Pass-Through Certificates Series 2005-AR17 Trust was formed as a common law trust (WaMu Securitized Trust) under New York law. The corpus of the trust consists of a pool of residential mortgage notes purportedly secured by liens on residential real estate. La Salle Bank, N.A., was the original trustee for the WaMu Securitized Trust.[3] Glaski alleges that the WaMu Securitized Trust has no continuing duties other than to hold assets and to issue various series of certificates of investment. A description of the certificates of investment as well as the categories of mortgage loans is included in the prospectus filed with the Securities and Exchange Commission (SEC) on October 21, 2005. Glaski alleges that the investment certificates issued by the WaMu Securitized Trust were duly registered with the SEC.

The closing date for the WaMu Securitized Trust was December 21, 2005, or 90 days thereafter. Glaski alleges that the attempt to assign his note and deed of trust to the WaMu Securitized Trust was made after the closing date and, therefore, the assignment was ineffective. (See fn. 12, post.)

WaMu’s Failure and Transfers of the Loan

In September 2008, WaMu was seized by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation (FDIC) was appointed as a receiver for WaMu. That same day, the FDIC, in its capacity as receiver, sold the assets and liabilities of WaMu to defendant JPMorgan Chase Bank, N.A., (JP Morgan). This transaction was documented by a “PURCHASE AND ASSUMPTION AGREEMENT WHOLE BANK” (boldface and underlining omitted) between the FDIC and JP Morgan dated as of September 25, 2008. If Glaski’s loan was not validly transferred to the WaMu Securitized Trust, it is possible, though not certain, that JP Morgan acquired the Glaski deed of trust when it purchased WaMu assets from the FDIC.[4] JP Morgan also might have acquired the right to service the loans held by the WaMu Securitized Trust.

In September 2008, Glaski spoke to a representative of defendant Chase Home Finance LLC (Chase),[5] which he believed was an agent of JP Morgan, and made an oral agreement to start the loan modification process. Glaski believed that Chase had taken over loan modification negotiations from WaMu.

On December 9, 2008, two documents related to the Glaski deed of trust were recorded with the Fresno County Recorder: (1) an “ASSIGNMENT OF DEED OF TRUST” and (2) a “NOTICE OF DEFAULT AND ELECTION TO SELL UNDER DEED OF TRUST” (boldface omitted; hereinafter the NOD). The assignment stated that JP Morgan transferred and assigned all beneficial interest under the Glaski deed of trust to “LaSalle Bank NA as trustee for WaMu [Securitized Trust]” together with the note described in and secured by the Glaski deed of trust.[6]

Notice of Default and Sale of the Property

The NOD informed Glaski that (1) the Property was in foreclosure because he was behind in his payments[7] and (2) the Property could be sold without any court action. The NOD also stated that “the present beneficiary under” the Glaski deed of trust had delivered to the trustee a written declaration and demand for sale. According to the NOD, all sums secured by the deed of trust had been declared immediately due and payable and that the beneficiary elected to cause the Property to be sold to satisfy that obligation.

The NOD stated the amount of past due payments was $11,200.78 as of December 8, 2008.[8] It also stated: “To find out the amount you must pay, or to arrange for payment to stop the foreclosure, … contact: JPMorgan Chase Bank, National Association, at 7301 BAYMEADOWS WAY, JACKSONVILLE, FL 32256, (877) 926-8937.”

Approximately three months after the NOD was recorded and served, the next official step in the nonjudicial foreclosure process occurred. On March 12, 2009, a “NOTICE OF TRUSTEE’S SALE” was recorded by the Fresno County Recorder (notice of sale). The sale was scheduled for April 1, 2009. The notice stated that Glaski was in default under his deed of trust and estimated the amount owed at $734,115.10.

The notice of sale indicated it was signed on March 10, 2009, by Deborah Brignac, as Vice President for California Reconveyance. Glaski alleges that Brignac’s signature was forged to effectuate a fraudulent foreclosure and trustee’s sale of his primary residence.

Glaski alleges that from March until May 2009, he was led to believe by his negotiations with Chase that a loan modification was in process with JP Morgan.

Despite these negotiations, a nonjudicial foreclosure sale of the Property was conducted on May 27, 2009. Bank of America, as successor trustee for the WaMu Securitized Trust and beneficiary under the Glaski deed of trust, was the highest bidder at the sale.

On June 15, 2009, another “ASSIGNMENT OF DEED OF TRUST” was recorded with the Fresno County Recorder. This assignment, like the assignment recorded in December 2008, identified JP Morgan as the assigning party. The entity receiving all beneficial interest under the Glaski deed of trust was identified as Bank of America, “as successor by merger to `LaSalle Bank NA as trustee for WaMu [Securitized Trust]. …”[9] The assignment of deed of trust indicates it was signed by Brignac, as Vice President for JP Morgan. Glaski alleges that Brignac’s signature was forged.

The very next document filed by the Fresno County Recorder on June 15, 2009, was a “TRUSTEE’S DEED UPON SALE.” (Boldface omitted.) The trustee’s deed upon sale stated that California Reconveyance, as the duly appointed trustee under the Glaski deed of trust, granted and conveyed to Bank of America, as successor by merger to La Salle NA as trustee for the WaMu Securitized Trust, all of its right, title and interest to the Property. The trustee’s deed upon sale stated that the amount of the unpaid debt and costs was $738,238.04 and that the grantee, paid $339,150 at the trustee’s sale, either in lawful money or by credit bid.

PROCEEDINGS

In October 2009, Glaski filed his original complaint. In August 2011, Glaski filed the SAC, which alleged the following numbered causes of action:

(1) Fraud against JPMorgan and California Reconveyance for the alleged forged signatures of Deborah Brignac as vice president for California Reconveyance and then as vice president of JPMorgan;

(2) Fraud against all defendants for their failure to timely and properly transfer the Glaski loan to the WaMu Securitized Trust and their representations to the contrary;

(3) Quiet title against Bank of America, Chase, and California Reconveyance based on the broken chain of title caused by the defective transfer of the loan to the WaMu Securitized Trust;

(4) Wrongful foreclosure against all defendants, based on the forged signatures of Deborah Brignac and the failure to timely and properly transfer the Glaski loan to the WaMu Securitized Trust;

(5) Declaratory relief against all defendants, based on the above acts by defendants;

(8) Cancellation of various foreclosure documents against all defendants, based on the above acts by the defendants; and

(9) Unfair practices under California Business and Professions Code section 17200, et seq., against all defendants.

Among other things, Glaski raised questions regarding the chain of ownership, by contending that the defendants were not the lender or beneficiary under his deed of trust and, therefore, did not have the authority to foreclose.

In September 2011, defendants filed a demurrer that challenged each cause of action in the SAC on the grounds that it failed to state facts sufficient to constitute a claim for relief. With respect to the wrongful foreclosure cause of action, defendants argued that Glaski failed to allege (1) any procedural irregularity that would justify setting aside the presumptively valid trustee’s sale and (2) that he could tender the amount owed if the trustee’s sale were set aside.

To support their demurrer to the SAC, defendants filed a request for judicial notice concerning (1) Order No. 2008-36 of the Office of Thrift Supervision, dated September 25, 2008, appointing the FDIC as receiver of Washington Mutual Bank and (2) the Purchase and Assumption Agreement Whole Bank between the FDIC and JP Morgan dated as of September 25, 2008, concerning the assets, deposits and liabilities of Washington Mutual Bank.[10]

Glaski opposed the demurrer, arguing that breaks in the chain of ownership of his deed of trust were sufficiently alleged. He asserted that Brignac’s signature was forged and the assignment bearing that forgery was void. His opposition also provided a more detailed explanation of his argument that his deed of trust had not been effectively transferred to the WaMu Securitized Trust that held the pool of mortgage loans. Thus, in Glaski’s view, Bank of America’s claim as the successor trustee is flawed because the trust never held his loan.

On November 15, 2011, the trial court heard argument from counsel regarding the demurrer. Counsel for Glaski argued, among other things, that the possible ratification of the allegedly forged signatures of Brignac presented an issue of fact that could not be resolved at the pleading stage.

Later that day, the court filed a minute order adopting its tentative ruling. As background for the issues presented in this appeal, we will describe the trial court’s ruling on Glaski’s two fraud causes of action and his wrongful foreclosure cause of action.

The ruling stated that the first cause of action for fraud was based on an allegation that defendants misrepresented material information by causing a forged signature to be placed on the June 2009 assignment of deed of trust. The ruling stated that if the signature of Brignac was forged, California Reconveyance “ratified the signature by treating it as valid.” As an additional rationale, the ruling cited Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149 (Gomes) for the proposition that the exhaustive nature of California’s nonjudicial foreclosure scheme prohibited the introduction of additional requirements challenging the authority of the lender’s nominee to initiate nonjudicial foreclosure.

As to the second cause of action for fraud, the ruling noted the allegation that the Glaski deed of trust was transferred to the WaMu Securitized Trust after the trust’s closing date and summarized the claim as asserting that the Glaski deed of trust had been improperly transferred and, therefore, the assignment was void ab initio. The ruling rejected this claim, stating: “[T]o reiterate, Gomes v. Countrywide, supra holds that there is no legal basis to challenge the authority of the trustee, mortgagee, beneficiary, or any of their authorized agents to initiate the foreclosure process citing Civil Code § 2924, subd. (a)(1).”

The ruling stated that the fourth cause of action for wrongful foreclosure was “based upon the invalidity of the foreclosure sale conducted on May 27, 2009 due to the `forged’ signature of Deborah Brignac and the failure of Defendants to `provide a chain of title of the note and the mortgage.'” The ruling stated that, as explained earlier, “these contentions are meritless” and sustained the general demurrer to the wrongful foreclosure claim without leave to amend.

Subsequently, a judgment of dismissal was entered and Glaski filed a notice of appeal.

DISCUSSION

I. STANDARD OF REVIEW

The trial court sustained the demurrer to the SAC on the ground that it did “not state facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e).) The standard of review applicable to such an order is well settled. “[W]e examine the complaint de novo to determine whether it alleges facts sufficient to state a cause of action under any legal theory. …” (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.)

II. FRAUD

A. Rules for Pleading Fraud

The elements of a fraud cause of action are (1) misrepresentation, (2) knowledge of the falsity or scienter, (3) intent to defraud—that is, induce reliance, (4) justifiable reliance, and (5) resulting damages. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) These elements may not be pleaded in a general or conclusory fashion. (Id. at p. 645.) Fraud must be pled specifically—that is, a plaintiff must plead facts that show with particularity the elements of the cause of action. (Ibid.)

In their demurrer, defendants contended facts establishing detrimental reliance were not alleged.

B. First Cause of Action for Fraud, Lack of Specific Allegations of Reliance

Glaski’s first cause of action, which alleges a fraud implemented through forged documents, alleges that defendants’ act “caused Plaintiff to rely on the recorded documents and ultimately lose the property which served as his primary residence, and caused Plaintiff further damage, proof of which will be made at trial.”

This allegation is a general allegation of reliance and damage. It does not identify the particular acts Glaski took because of the alleged forgeries. Similarly, it does not identify any acts that Glaski did not take because of his reliance on the alleged forgeries. Therefore, we conclude that Glaski’s conclusory allegation of reliance is insufficient under the rules of law that require fraud to be pled specifically. (Lazar v. Superior Court, supra, 12 Cal.4th at p. 645.)

The next question is whether the trial court abused its discretion in sustaining the demurrer to the first fraud cause of action without leave to amend.

In March 2011, the trial court granted Glaski leave to amend when ruling on defendants’ motion for judgment on the pleadings. The court indicated that Glaski’s complaint had jumbled together many different statutes and theories of liability and directed Glaski to avoid “chain letter” allegations in his amended pleading.

Glaski’s first amended complaint set forth two fraud causes of action that are similar to those included in the SAC.

Defendants demurred to the first amended complaint. The trial court’s minute order states: “Plaintiff is advised for the last time to plead each cause of action such that only the essential elements for the claim are set forth without reincorporation of lengthy `general allegations’. In other words, the `facts’ to be pleaded are those upon which liability depends (i.e., `the facts constituting the cause of action’).”

After Glaski filed his SAC, defendants filed a demurrer. Glaski then filed an opposition that asserted he had properly alleged detrimental reliance. He did not argue he could amend to allege specifically the action he took or did not take because of his reliance on the alleged forgeries.

Accordingly, Glaski failed to carry his burden of demonstrating he could allege with the requisite specificity the elements of justifiable reliance and damages resulting from that reliance. (See Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [the burden of articulating how a defective pleading could be cured is squarely on the plaintiff].) Therefore, we conclude that the trial court did not abuse its discretion when it denied leave to amend as to the SAC’s first cause of action for fraud.

C. Second Fraud Cause of Action, Lack of Specific Allegations of Reliance

Glaski’s second cause of action for fraud alleged that WaMu failed to transfer his note and deed of trust into the WaMu Securitized Trust back in 2005. Glaski further alleged, in essence, that defendants attempted to rectify WaMu’s failure by engaging in a fraudulent scheme to assign his note and deed of trust into the WaMu Securitized Trust. The scheme was implemented in 2008 and 2009 and its purpose was to enable defendants to fraudulently foreclosure against the Property.

The second cause of action for fraud attempts to allege detrimental reliance in the following sentence: “Defendants, and each of them, also knew that the act of recording the Assignment of Deed of trust without the authorization to do so would cause Plaintiff to rely upon Defendants’ actions by attempting to negotiate a loan modification with representatives of Chase Home Finance, LLC, agents of JP MORGAN.” The assignment mentioned in this allegation is the assignment of deed of trust recorded in June 2009—no other assignment of deed of trust is referred to in the second cause of action.

The allegation of reliance does not withstand scrutiny. The act of recording the allegedly fraudulent assignment occurred in June 2009, after the trustee’s sale of the Property had been conducted. If Glaski was induced to negotiate a loan modification at that time, it is unclear how negotiations occurring after the May 2009 trustee’s sale could have diverted him from stopping the trustee’s sale. Thus, Glaski’s allegation of reliance is not connected to any detriment or damage.

Because Glaski has not demonstrated how this defect in his fraud allegations could be cured by amendment, we conclude that the trial court did not abuse its discretion in denying leave to amend the second cause of action in the SAC.

III. WRONGFUL FORECLOSURE BY NONHOLDER OF THE DEED OF TRUST

A. Glaski’s Theory of Wrongful Foreclosure

Glaski’s theory that the foreclosure was wrongful is based on (1) the position that paragraph 22 of the Glaski deed of trust authorizes only the lender-beneficiary (or its assignee) to (a) accelerate the loan after a default and (b) elect to cause the Property to be sold and (2) the allegation that a nonholder of the deed of trust, rather than the true beneficiary, instructed California Reconveyance to initiate the foreclosure.[11]

In particular, Glaski alleges that (1) the corpus of the WaMu Securitized Trust was a pool of residential mortgage notes purportedly secured by liens on residential real estate; (2) section 2.05 of “the Pooling and Servicing Agreement” required that all mortgage files transferred to the WaMu Securitized Trust be delivered to the trustee or initial custodian of the WaMu Securitized Trust before the closing date of the trust (which was allegedly set for December 21, 2005, or 90 days thereafter); (3) the trustee or initial custodian was required to identify all such records as being held by or on behalf of the WaMu Securitized Trust; (4) Glaski’s note and loan were not transferred to the WaMu Securitized Trust prior to its closing date; (5) the assignment of the Glaski deed of trust did not occur by the closing date in December 2005; (6) the transfer to the trust attempted by the assignment of deed of trust recorded on June 15, 2009, occurred long after the trust was closed; and (7) the attempted assignment was ineffective as the WaMu Securitized Trust could not have accepted the Glaski deed of trust after the closing date because of the pooling and servicing agreement and the statutory requirements applicable to a Real Estate Mortgage Investment Conduit (REMIC) trust.[12]

In Barrionuevo v. Chase Bank, N.A. (N.D.Cal. 2012) 885 F.Supp.2d 964, the district court stated: “Several courts have recognized the existence of a valid cause of action for wrongful foreclosure where a party alleged not to be the true beneficiary instructs the trustee to file a Notice of Default and initiate nonjudicial foreclosure.” (Id. at p. 973.) We agree with this statement of law, but believe that properly alleging a cause of action under this theory requires more than simply stating that the defendant who invoked the power of sale was not the true beneficiary under the deed of trust. Rather, a plaintiff asserting this theory must allege facts that show the defendant who invoked the power of sale was not the true beneficiary. (See Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495, 1506 [plaintiff failed to plead specific facts demonstrating the transfer of the note and deed of trust were invalid].)

C. Borrower’s Standing to Raise a Defect in an Assignment

One basis for claiming that a foreclosing party did not hold the deed of trust is that the assignment relied upon by that party was ineffective. When a borrower asserts an assignment was ineffective, a question often arises about the borrower’s standing to challenge the assignment of the loan (note and deed of trust)—an assignment to which the borrower is not a party. (E.g., Conlin v. Mortgage Electronic Registration Systems, Inc. (6th Cir. 2013) 714 F.3d 355, 361 [third party may only challenge an assignment if that challenge would render the assignment absolutely invalid or ineffective, or void]; Culhane v. Aurora Loan Services of Nebraska (1st Cir. 2013) 708 F.3d 282, 291 [under Massachusetts law, mortgagor has standing to challenge a mortgage assignment as invalid, ineffective or void]; Gilbert v. Chase Home Finance, LLC (E.D.Cal., May 28, 2013, No. 1:13-CV-265 AWI SKO) 2013 WL 2318890.)[13]

California’s version of the principle concerning a third party’s ability to challenge an assignment has been stated in a secondary authority as follows:

“Where an assignment is merely voidable at the election of the assignor, third parties, and particularly the obligor, cannot … successfully challenge the validity or effectiveness of the transfer.” (7 Cal.Jur.3d (2012) Assignments, § 43.)

This statement implies that a borrower can challenge an assignment of his or her note and deed of trust if the defect asserted would void the assignment. (See Reinagel v. Deutsche Bank National Trust Co. (5th Cir. 2013) ___ F.3d ___ [2013 WL 3480207 at p. *3] [following majority rule that an obligor may raise any ground that renders the assignment void, rather than merely voidable].) We adopt this view of the law and turn to the question whether Glaski’s allegations have presented a theory under which the challenged assignments are void, not merely voidable.

We reject the view that a borrower’s challenge to an assignment must fail once it is determined that the borrower was not a party to, or third party beneficiary of, the assignment agreement. Cases adopting that position “paint with too broad a brush.” (Culhane v. Aurora Loan Services of Nebraska, supra, 708 F.3d at p. 290.) Instead, courts should proceed to the question whether the assignment was void.

D. Voidness of a Post-Closing Date Transfers to a Securitized Trust

Here, the SAC includes a broad allegation that the WaMu Securitized Trust “did not have standing to foreclosure on the … Property, as Defendants cannot provide the entire chain of title of the note and the [deed of trust].”[14]

More specifically, the SAC identifies two possible chains of title under which Bank of America, as trustee for the WaMu Securitized Trust, could claim to be the holder of the Glaski deed of trust and alleges that each possible chain of title suffers from the same defect—a transfer that occurred after the closing date of the trust.

First, Glaski addresses the possibility that (1) Bank of America’s chain of title is based on its status as successor trustee for the WaMu Securitized Trust and (2) the Glaski deed of trust became part of the WaMu Securitized Trust’s property when the securitized trust was created in 2005. The SAC alleges that WaMu did not transfer Glaski’s note and deed of trust into the WaMu Securitized Trust prior to the closing date established by the pooling and servicing agreement. If WaMu’s attempted transfer was void, then Bank of America could not claim to be the holder of the Glaski deed of trust simply by virtue of being the successor trustee of the WaMu Securitized Trust.

Second, Glaski addresses the possibility that Bank of America acquired Glaski’s deed of trust from JP Morgan, which may have acquired it from the FDIC. Glaski contends this alternate chain of title also is defective because JP Morgan’s attempt to transfer the Glaski deed of trust to Bank of America, as trustee for the WaMu Securitized Trust, occurred after the trust’s closing date. Glaski specifically alleges JP Morgan’s attempted assignment of the deed of trust to the WaMu Securitized Trust in June 2009 occurred long after the WaMu Securitized Trust closed (i.e., 90 days after December 21, 2005).

Based on these allegations, we will address whether a post-closing date transfer into a securitized trust is the type of defect that would render the transfer void. Other allegations relevant to this inquiry are that the WaMu Securitized Trust (1) was formed in 2005 under New York law and (2) was subject to the requirements imposed on REMIC trusts (entities that do not pay federal income tax) by the Internal Revenue Code.

The allegation that the WaMu Securitized Trust was formed under New York law supports the conclusion that New York law governs the operation of the trust. New York Estates, Powers & Trusts Law section 7-2.4, provides: “If the trust is expressed in an instrument creating the estate of the trustee, every sale, conveyance or other act of the trustee in contravention of the trust, except as authorized by this article and by any other provision of law, is void.”[15]

Because the WaMu Securitized Trust was created by the pooling and servicing agreement and that agreement establishes a closing date after which the trust may no longer accept loans, this statutory provision provides a legal basis for concluding that the trustee’s attempt to accept a loan after the closing date would be void as an act in contravention of the trust document.

Despite the foregoing cases, we will join those courts that have read the New York statute literally. We recognize that a literal reading and application of the statute may not always be appropriate because, in some contexts, a literal reading might defeat the statutory purpose by harming, rather than protecting, the beneficiaries of the trust. In this case, however, we believe applying the statute to void the attempted transfer is justified because it protects the beneficiaries of the WaMu Securitized Trust from the potential adverse tax consequence of the trust losing its status as a REMIC trust under the Internal Revenue Code. Because the literal interpretation furthers the statutory purpose, we join the position stated by a New York court approximately two months ago: “Under New York Trust Law, every sale, conveyance or other act of the trustee in contravention of the trust is void. EPTL § 7-2.4. Therefore, the acceptance of the note and mortgage by the trustee after the date the trust closed, would be void.” (Wells Fargo Bank, N.A. v. Erobobo (Apr. 29, 2013) 39 Misc.3d 1220(A), 2013 WL 1831799, slip opn. p. 8; see Levitin & Twomey, Mortgage Servicing, supra, 28 Yale J. on Reg. at p. 14, fn. 35 [under New York law, any transfer to the trust in contravention of the trust documents is void].) Relying on Erobobo, a bankruptcy court recently concluded “that under New York law, assignment of the Saldivars’ Note after the start up day is void ab initio. As such, none of the Saldivars’ claims will be dismissed for lack of standing.” (In re Saldivar (Bankr.S.D.Tex., Jun. 5, 2013, No. 11-10689) 2013 WL 2452699, at p. *4.)

We conclude that Glaski’s factual allegations regarding post-closing date attempts to transfer his deed of trust into the WaMu Securitized Trust are sufficient to state a basis for concluding the attempted transfers were void. As a result, Glaski has a stated cognizable claim for wrongful foreclosure under the theory that the entity invoking the power of sale (i.e., Bank of America in its capacity as trustee for the WaMu Securitized Trust) was not the holder of the Glaski deed of trust.[16]

We are aware that that some federal district courts sitting in California have rejected the post-closing date theory of invalidity on the grounds that the borrower does not have standing to challenge an assignment between two other parties. (Aniel v. GMAC Mortgage, LLC (N.D.Cal., Nov. 2, 2012, No. C 12-04201 SBA) 2012 WL 5389706 [joining courts that held borrowers lack standing to assert the loan transfer occurred outside the temporal bounds prescribed by the pooling and servicing agreement]; Almutarreb v. Bank of New York Trust Co., N.A. (N.D.Cal., Sept. 24, 2012, No. C 12-3061 EMC) 2012 WL 4371410.) These cases are not persuasive because they do not address the principle that a borrower may challenge an assignment that is void and they do not apply New York trust law to the operation of the securitized trusts in question.

E. Application of Gomes

The next question we address is whether Glaski’s wrongful foreclosure claim is precluded by the principles set forth in Gomes, supra, 192 Cal.App.4th 1149, a case relied upon by the trial court in sustaining the demurrer. Gomes was a pre-foreclosure action brought by a borrower against the lender, trustee under a deed and trust, and MERS, a national electronic registry that tracks the transfer of ownership interests and servicing rights in mortgage loans in the secondary mortgage market. (Id. at p. 1151.) The subject trust deed identified MERS as a nominee for the lender and that MERS is the beneficiary under the trust deed. After initiation of a nonjudicial forclosure, borrower sued for wrongful initiation of foreclosure, alleging that the current owner of the note did not authorize MERS, the nominee, to proceed with the foreclosure. The appellate court held that California’s nonjudicial foreclosure system, outlined in Civil Code sections 2924 through 2924k, is a “`comprehensive framework for the regulation of a nonjudicial foreclosure sale'” that did not allow for a challenge to the authority of the person initiating the foreclosure. (Gomes, supra, at p. 1154.)

“In Gomes, the California Court of Appeal held that a plaintiff does not have a right to bring an action to determine the nominee’s authorization to proceed with a nonjudicial foreclosure on behalf of a noteholder. [Citation.] The nominee in Gomes was MERS. [Citation.] Here, Plaintiff is not seeking such a determination. The role of the nominee is not central to this action as it was in Gomes. Rather, Plaintiff alleges that the transfer of rights to the WAMU Trust is improper, thus Defendants consequently lack the legal right to either collect on the debt or enforce the underlying security interest.” (Naranjo, supra, 2012 WL 3030370, at p. *3.)

Thus, the court in Naranjo did not interpret Gomes as barring a claim that was essentially the same as the post-closing date claim Glaski is asserting in this case.

Furthermore, the limited nature of the holding in Gomes is demonstrated by the Gomes court’s discussion of three federal cases relied upon by Mr. Gomes. The court stated that the federal cases were not on point because none recognized a cause of action requiring the noteholder’s nominee to prove its authority to initiate a foreclosure proceeding. (Gomes, supra, 192 Cal.App.4th at p. 1155.) The Gomes court described one of the federal cases by stating that “the plaintiff alleged wrongful foreclosure on the ground that assignments of the deed of trust had been improperly backdated, and thus the wrong party had initiated the foreclosure process. [Citaiton.] No such infirmity is alleged here.” (Ibid.; see Lester v. J.P. Morgan Chase Bank (N.D.Cal., Feb. 20, 2013) ___ F.Supp.2d ___, [2013 WL 633333, p. *7] [concluding Gomes did not preclude the plaintiff from challenging JP Morgan’s authority to foreclose].) The Gomes court also stated it was significant that in each of the three federal cases, “the plaintiff’s complaint identified a specific factual basis for alleging that the foreclosure was not initiated by the correct party.” (Gomes, supra, at p. 1156.)

The instant case is distinguishable from Gomes on at least two grounds. First, like Naranjo, Glaski has alleged that the entity claiming to be the noteholder was not the true owner of the note. In contrast, the principle set forth in Gomes concerns the authority of the noteholder’s nominee, MERS. Second, Glaski has alleged specific grounds for his theory that the foreclosure was not conducted at the direction of the correct party.

In view of the limiting statements included in the Gomes opinion, we do not interpret it as barring claims that challenge a foreclosure based on specific allegations that an attempt to transfer the deed of trust was void. Our interpretation, which allows borrowers to pursue questions regarding the chain of ownership, is compatible with Herrera v. Deutsche Bank National Trust Co., supra, 196 Cal.App.4th 1366. In that case, the court concluded that triable issues of material fact existed regarding alleged breaks in the chain of ownership of the deed of trust in question. (Id. at p. 1378.) Those triable issues existed because Deutsche Bank’s motion for summary judgment failed to establish it was the beneficiary under that deed of trust. (Ibid.)

F. Tender

Defendants contend that Glaski’s claims for wrongful foreclosure, cancellation of instruments and quiet title are defective because Glaski failed to allege that he made a valid and viable tender of payment of the indebtedness. (See Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 117 [“valid and viable tender of payment of the indebtedness owing is essential to an action to cancel a voidable sale under a deed of trust”].)

Glaski contends that he is not required to allege he tendered payment of the loan balance because (1) there are many exceptions to the tender rule, (2) defendants have offered no authority for the proposition that the absence of a tender bars a claim for damages,[17] and (3) the tender rule is a principle of equity and its application should not be decided against him at the pleading stage.

Accordingly, we cannot uphold the demurrer to the wrongful foreclosure claim based on the absence of an allegation that Glaski tendered the amount due under his loan. Thus, we need not address the other exceptions to the tender requirement. (See e.g., Onofrio v. Rice (1997) 55 Cal.App.4th 413, 424 [tender may not be required where it would be inequitable to do so].)

G. Remedy of Setting Aside Trustee’s Sale

Defendants argue that the allegedly ineffective transfer to the WaMu Securitized Trust was a mistake that occurred outside the confines of the statutory nonjudicial foreclosure proceeding and, pursuant to Nguyen v. Calhoun (2003) 105 Cal.App.4th 428, 445, that mistake does not provide a basis for invalidating the trustee’s sale.

First, this argument does not negate the possibility that other types of relief, such as damages, are available to Glaski. (See generally, Annot., Recognition of Action for Damages for Wrongful Foreclosure—Types of Action, supra, 82 A.L.R.6th 43.)

H. Causes of Action Stated

Based on the foregoing, we conclude that Glaski’s fourth cause of action has stated a claim for wrongful foreclosure. It follows that Glaski also has stated claims for quiet title (third cause of action), declaratory relief (fifth cause of action), cancellation of instruments (eighth cause of action), and unfair business practices under Business and Professions Code section 17200 (ninth cause of action). (See Susilo v. Wells Fargo Bank, N.A. (C.D.Cal. 2011) 796 F.Supp.2d 1177, 1196 [plaintiff’s wrongful foreclosure claims served as predicate violations for her UCL claim].)

IV. JUDICIAL NOTICE

A. Glaski’s Request for Judicial Notice

When Glaski filed his opening brief, he also filed a request for judicial notice of (1) a Consent Judgment entered on April 4, 2012, by the United States District Court of the District of Columbia in United States v. Bank of America Corp. (D.D.C. No. 12-CV-00361); (2) the Settlement Term Sheet attached to the Consent Judgment; and (3) the federal and state release documents attached to the Consent Judgment as Exhibits F and G.

Defendants opposed the request for judicial notice on the ground that the request violated the requirements in California Rules of Court, rule 8.252 because it was not filed with a separate proposed order, did not state why the matter to be noticed was relevant to the appeal, and did not state whether the matters were submitted to the trial court and, if so, whether that court took judicial notice of the matters.

The documents included in Glaski’s request for judicial notice may provide background information and insight into robo-signing[18] and other problems that the lending industry has had with the procedures used to foreclose on defaulted mortgages. However, these documents do not directly affect whether the allegations in the SAC are sufficient to state a cause of action. Therefore, we deny Glaski’s request for judicial notice.

B. Defendants’ Request for Judicial Notice of Assignment

The “ASSIGNMENT OF DEED OF TRUST” recorded on December 9, 2008, that stated JP Morgan transferred and assigned all beneficial interest under the Glaski deed of trust to “LaSalle Bank NA as trustee for WaMu [Securitized Trust]” together with the note described in and secured by the Glaski deed of trust was not attached to the SAC as an exhibit. That document is part of the appellate record because the respondents’ appendix includes a copy of defendants’ request for judicial notice that was filed in June 2011 to support a motion for judgment on the pleadings.

In ruling on defendants’ request for judicial notice, the trial court stated that it could only take judicial notice that certain documents in the request, including the assignment of deed of trust, had been recorded, but it could not take judicial notice of factual matters stated in those documents. This ruling is correct and unchallenged on appeal. Therefore, like the trial court, we will take judicial notice of the existence and recordation of the December 2008 assignment, but we “do not take notice of the truth of matters stated therein.” (Herrera v. Deutsche Bank National Trust Co., supra, 196 Cal.App.4th at p. 1375.) As a result, the assignment of deed of trust does not establish that JP Morgan was, in fact, the holder of the beneficial interest in the Glaski deed of trust that the assignment states was transferred to LaSalle Bank. Similarly, it does not establish that LaSalle Bank in fact became the owner or holder of that beneficial interest.

Because the document does not establish these facts for purposes of this demurrer, it does not cure either of the breaks in the two alternate chains of ownership challenged in the SAC. Therefore, the December 2008 assignment does not provide a basis for sustaining the demurrer.

DISPOSITION

The judgment of dismissal is reversed. The trial court is directed to vacate its order sustaining the general demurrer and to enter a new order overruling that demurrer as to the third, fourth, fifth, eighth and ninth causes of action.

Glaski’s request for judicial notice filed on September 25, 2012, is denied.

Glaski shall recover his costs on appeal.

Wiseman, Acting P.J. and Kane, J., concurs.

ORDER GRANTING REQUEST FOR PUBLICATION

As the nonpublished opinion filed on July 31, 2013, in the above entitled matter hereby meets the standards for publication specified in the California Rules of Court, rule 8.1105(c), it is ordered that the opinion be certified for publication in the Official Reports.

KANE, J., concur.

[1] Mortgage-backed securities are created through a complex process known as “securization.” (See Levitin & Twomey, Mortgage Servicing (2011) 28 Yale J. on Reg. 1, 13 [“a mortgage securitization transaction is extremely complex”].) In simplified terms, “securitization” is the process where (1) many loans are bundled together and transferred to a passive entity, such as a trust, and (2) the trust holds the loans and issues investment securities that are repaid from the mortgage payments made on the loans. (Oppenheim & Trask-Rahn, Deconstructing the Black Magic of Securitized Trusts: How the Mortgage-Backed Securitization Process is Hurting the Banking Industry’s Ability to Foreclose and Proving the Best Offense for a Foreclosure Defense (2012) 41 Stetson L.Rev. 745, 753-754 (hereinafter, Deconstructing Securitized Trusts).) Hence, the securities issued by the trust are “mortgage-backed.” For purposes of this opinion, we will refer to such a trust as a “securitized trust.”

[2] Civil Code section 2924, subdivision (a)(1) states that a “trustee, mortgagee, or beneficiary, or any of their authorized agents” may initiate the nonjudicial foreclosure process. This statute and the provision of the Glaski deed of trust are the basis for Glaski’s position that the nonjudicial foreclosure in this case was wrongful—namely, that the power of sale in the Glaski deed of trust was invoked by an entity that was not the true beneficiary.

[3] Glaski’s pleading does not allege that LaSalle Bank was the original trustee when the WaMu Securitized Trust was formed in late 2005, but filings with the Securities and Exchange Commission identify LaSalle Bank as the original trustee. We provide this information for background purposes only and it plays no role in our decision in this appeal.

[4] Another possibility, which was acknowledged by both sides at oral argument, is that the true holder of the note and deed of trust cannot be determined at this stage of the proceedings. This lack of certainty regarding who holds the deed of trust is not uncommon when a securitized trust is involved. (See Mortgage and Asset Backed Securities Litigation Handbook (2012) § 5:114 [often difficult for securitized trust to prove ownership by showing a chain of assignments of the loan from the originating lender].)

[5] It appears this company is no longer a separate entity. The certificate of interested entities filed with the respondents’ brief refers to “JPMorgan Chase Bank, N.A. as successor by merger to Chase Home Finance, LLC.”

[6] One controversy presented by this appeal is whether this court should consider the December 9, 2008, assignment of deed of trust, which is not an exhibit to the SAC. Because the trial court took judicial notice of the existence and recordation of the assignment earlier in the litigation, we too will consider the assignment, but will not presume the matters stated therein are true. (See pt. IV.B, post.) For instance, we will not assume that JP Morgan actually held any interests that it could assign to LaSalle Bank. (See Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375 [taking judicial notice of a recorded assignment does not establish assignee’s ownership of deed of trust].)

[7] Specifically, the notice stated that his August 2008 installment payment and all subsequent installment payments had not been made.

[8] The signature block at the end of the NOD indicated it was signed by Colleen Irby as assistant secretary for California Reconveyance. The first page of the notice stated that recording was requested by California Reconveyance. Affidavits of mailing attached to the SAC stated that the declarant mailed copies of the notice of default to Glaski at his home address and to Bank of America, care of Custom Recording Solutions, at an address in Santa Ana, California. The affidavits of mailing are the earliest documents in the appellate record indicating that Bank of America had any involvement with Glaski’s loan.

[9] Bank of America took over La Salle Bank by merger in 2007.

[10] The trial court did not explicitly rule on defendants’ request for judicial notice of these documents, but referred to matters set forth in these documents in its ruling. Therefore, for purposes of this appeal, we will infer that the trial court granted the request.

[11] The claim that a foreclosure was conducted by or at the direction of a nonholder of mortgage rights often arises where the mortgage has been securitized. (Buchwalter, Cause of Action in Tort for Wrongful Foreclosure of Residential Mortgage, 52 Causes of Action Second (2012) 119, 149 [§ 11 addresses foreclosure by a nonholder of mortgage rights].)

[12] This allegation comports with the following view of pooling and servicing agreements and the federal tax code provisions applicable to REMIC trusts. “Once the bundled mortgages are given to a depositor, the [pooling and servicing agreement] and IRS tax code provisions require that the mortgages be transferred to the trust within a certain time frame, usually ninety dates from the date the trust is created. After such time, the trust closes and any subsequent transfers are invalid. The reason for this is purely economic for the trust. If the mortgages are properly transferred within the ninety-day open period, and then the trust properly closes, the trust is allowed to maintain REMIC tax status.” (Deconstructing Securitized Trusts, supra, 41 Stetson L.Rev. at pp. 757-758.)

[14] Although this allegation and the remainder of the SAC do not explicitly identify the trustee of the WaMu Securitized Trust as the entity that invoked the power of sale, it is reasonable to interpret the allegation in this manner. Such an interpretation is consistent with the position taken by Glaski’s attorney at the hearing on the demurrer, where she argued that the WaMu Securitized Trust did not obtain Glaski’s loan and thus was precluded from proceeding with the foreclosure.

[17] See generally, Annotation, Recognition of Action for Damages for Wrongful Foreclosure—Types of Action (2013) 82 A.L.R.6th 43 (claims that a foreclosure is “wrongful” can be tort-based, statute-based, and contract-based).

[18] Claims of misrepresentation or fraud related to robo-signing of foreclosure documents is addressed in Buchwalter, Cause of Action in Tort for Wrongful Foreclosure of Residential Mortgage, 52 Causes of Action Second, supra, at pages 147 to 149.

IN THE UNITED STATES BANKRUPTCY COURTFOR THE SOUTHERN DISTRICT OF TEXASBROWNSVILLE DIVISION

IN RE:GILBERTO SALDIVAR, SANDRACANALES SALDIVAR,

CHAPTER 13

Debtor(s). JUDGE ISGUR

GILBERTO T SALDIVAR, et alPlaintiff(s),vs.

JPMORGAN CHASE BANK, N.A., et alDefendant(s).

MEMORANDUM OPINION

EXCERPT:

Standing

As a threshold matter, the Court must first address Chase and Deutsche Bank’s assertion thatthe Saldivars lack standing to challenge the validity of the assignment of their mortgage to the Trust.A. Under New York Trust Law, is an ultra vires act void or merely voidable?A third party generally lacks standing to challenge the validity of an assignment. Bank ofAmerican Nat’l Assoc. v. Bassman FBT, L.L.C., et al. 981 N.E.2d 1, 7 (Ill. App. Ct. 2012). Aborrower may however raise a defense to an assignment, if that defense renders the assignment void.

Under 28 U.S.C. § 1652, this Court has the duty to apply New York law in accordance withthe controlling decision of the highest state court. Royal Bank of Canada v. Trentham Corp., 665F.2d 515, 516 (5th Cir. 1981). While the Court finds no applicable New York Court of Appealsdecision, a recent New York Supreme Court decision is factually similar to the case before the Court.See Wells Fargo Bank, N.A. v. Erobobo, et al., 2013 WL 1831799 (N.Y. Sup. Ct. April 29, 2013). InErobobo, defendants argued that plaintiff (a REMIC trust) was not the owner of the note becauseplaintiff obtained the note and mortgage after the trust had closed in violation of the terms of the PSAgoverning the trust, rendering plaintiff’s acquisition of the note void. Id. at *2. The Erobobo courtheld that under § 7-2.4, any conveyance in contravention of the PSA is void; this meant thatacceptance of the note and mortgage by the trustee after the date the trust closed rendered the transfervoid. Id. at 8.

Based on the Erobobo decision and the plain language of N.Y. Est. Powers & Trusts Law§ 7-2.4, the Court finds that under New York law, assignment of the Saldivars’ Note after the start upday is void ab initio. As such, none of the Saldivars’ claims will be dismissed for lack of standing.The Court expresses no view on the effect of any subsequent ratification, if any. It is sufficient that aclaim has been stated.

Rotimi Erobobo, THE CITY OF NEW YORK ENVIRONMENTAL CONTROL BOARD, “JOHN DOE” AND “JANE DOE” said names being fictitious, it being the intention of Plaintiff to designate any and all occupants of the premises being foreclosed herein, Defendants.

Upon reading the Notice of Motion by V.S. Vilkhu, Esq., Attorney for Plaintiff, WELLS [*2]FARGO BANK, N.A., as Trustee for ABFC 2006-OPT3 TRUST, ABFC ASSET-BACKED CERTIFICATES, SERIES 2006-OPT3, dated May 11th, 2010, together with the Attorney Affidavit of V.S. Vilkhu, Esq., dated May 11th, 2010, and all exhibits annexed thereto; the Memorandum of Law by V.S. Vilkhu, Esq., undated; the Affirmation in Opposition by Kenneth S. Pelsinger, Esq., Attorney for Defendant ROTIMI EROBOBO, dated November 19th, 2010; the Supplemental Affirmation in Opposition by Kenneth S. Pelsinger, Esq., dated August 3rd, 2011, and all exhibits annexed thereto; the Reply Affirmation of V.S. Vilkhu, Esq., dated January 24th, 2011, and all exhibits annexed thereto; the Memorandum of Law in Opposition to Plaintiff’s Motion for Summary Judgment by Kenneth S. Pelsinger, Esq., dated November 9th, 2011; the Pooling and Servicing Agreement of WELLS FARGO BANK, N.A., as Trustee for ABFC 2006-OPT3 TRUST, ABFC ASSET-BACKED CERTIFICATES, SERIES 2006-OPT3, dated October 1st, 2006; and after argument of counsel and due deliberation thereon, Plaintiff’s motion is denied for the reasons set forth below.

FACTS

Plaintiff brings this action to foreclose on a mortgage, dated July 16, 2006, which secured a loan of $420,000 issued to the Defendant by Alliance Mortgage Banking Corp., (“Alliance”). On July 17, 2006, Alliance assigned the note and mortgage to Option One Mortgage Corporation, (“Option One”). Option One then assigned the note and mortgage to Plaintiff by assignment executed July 15, 2008. Plaintiff is the trustee for a securitized trust entitled ABFC 2006-OPT3 TRUST, ABFC, ASSET BACKED CERTIFICATES, SERIES 2006-OPT3, (“the Trust”).

The Trust was formed as a vehicle for purchasing mortgage backed securities. The Trust is subject to the terms of a Pooling and Servicing Agreement, (“the PSA”). The PSA was signed by the Depositor, Asset Backed Funding Corporation (“ABFC”), by the Servicer, Option One, and by the Trustee, WELLS FARGO BANK, NA, and is dated October 1, 2006.The PSA set forth the manner in which mortgages would be purchased by the trust, as well as the duties of the trustee.

Section 2.01, subsection 1 of the PSA requires that transfer and assignment of mortgages must be effected by hand delivery, for deposit with the Trustee with the original note endorsed in blank.

Section 2.05 of the PSA requires that the Depositor transfer all right, title, interest in the mortgages to the Trustee, on behalf of the trust, as of the Closing Date. The Closing Date as provided in the PSA is November 14, 2006.

Option One assigned Defendant’s mortgage loan to the Plaintiff, as the Trustee, on July 15, 2008, approximately eighteen months after the trust had closed.

Plaintiff commenced this action on December 10, 2009, and alleged that it possessed the Note with an allonge on the date that this foreclosure action was commenced. Defendant, pro se, filed an answer containing a general denial.

Plaintiff filed a motion for summary judgment on May 11, 2010. After Defendant answered, he obtained counsel and opposed Plaintiff’s motion for summary judgment.

ARGUMENTS[*3]Plaintiff argues it is entitled to summary judgment to foreclose because it was in possession of the note and mortgage at the time the action was filed.

Defendant argues that Plaintiff is not in fact the owner or holder of the note because it obtained the note and mortgage after the trust had closed in violation of the terms of the PSA, and therefore the acquisition of the note and mortgage is void. Defendant also argues that Plaintiff obtained the mortgage and note without an intervening assignment, in violation of the PSA.

Plaintiff argues that Defendant’s claim that Plaintiff does not own the note and mortgage amounts to a standing argument, and because Defendant failed to raise standing in his answer as an affirmative defense or pre answer motion, he cannot do so now.

ANALYSIS

Defendant contested whether Plaintiff owns the mortgage and note by answering with a general denial of the facts alleged in the complaint, which included Plaintiff’s allegation that it owns the note and mortgage.

However, Plaintiff’s ownership of the note is not an issue of standing but an element of its cause of action which it must plead and prove.

The term “standing” has been applied to two legally distinct concepts. The first is legal capacity, or authority to sue. The second is whether a party has asserted a sufficient interest in the outcome of a dispute.

Standing and capacity to sue are related, but distinguishable legal concepts. Capacity requires an inquiry into the litigant’s status, i.e., its “power to appear and bring its grievance before the court”, while standing requires an inquiry into whether the litigant has “an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue.” Wells Fargo Bank Minnesota, Nat. Ass’n v Mastropaolo, 42 AD3d 239, 242 (2d Dept 2007) (internal citations omitted). Both concepts can result in dismissal on a pre answer motion by the defendant and are waived if not raised in a timely manner. Id.CPLR 3211(a)(3) provides that an action may be dismissed based on the grounds that the Plaintiff lacks the legal capacity to sue. It governs no other basis for dismissal.CPLR 3211(e) provides that a motion to dismiss pursuant to CPLR 3211(a)(3) is waived if not raised in a pre-answer motion or a responsive pleading.

There is a difference between the capacity to sue which gives the right to come into court, and possession of a cause of action which gives the right to relief. Kittinger v Churchill Evangelistic Assn Inc., 239 AD 253, 267 NYS 719 (4th Dept 1933). Incapacity to [*4]sue is not the same as insufficiency of facts to sue upon. Ward v Petri, 157 NY3d 301 (1898).

In the case of Ohlstein v Hillcrest, a defendant moved to dismiss a complaint in part based on lack of legal capacity to sue where plaintiff had assigned her stock. The Court denied that branch of the motion holding that even if plaintiff had assigned her stock, “the defect to be urged is that the complaint does not estate [sic] a cause of action in favor of the one who is suing, the alleged assignor – not that the plaintiff does not have the legal capacity to sue. Legal incapacity, as properly understood, generally envisages a defect in legal status, not lack of a cause of action in one who is sui juris.” Ohlstein v Hillcrest, 24 Misc 2d 212, 214, 195 NYS2d 920, 922 (Sup Ct NY Co 1959).

The difference was articulated by the Court in the case of Hebrew Home for Orphans v Freund, 208 Misc. 658, 144 N.Y.S.2d 608 (Sup Ct Bx 1955). The plaintiff in that case sought a judgment declaring that an assignment of a mortgage it held was valid. The defendants moved to dismiss the complaint on the grounds that since the assignment was not accompanied by delivery of the bond and mortgage to plaintiff, plaintiff did not own the bond and mortgage and thus had no legal capacity to sue or standing to maintain the action. The Court denied the motion, stating:

The application to dismiss the complaint on the alleged ground that the plaintiff lacks legal capacity to sue rests upon a misapprehension of the meaning of the term. See Gargiulo v. Gargiulo, 207 Misc. 427, 137 N.Y.S.2d 886. Rule 107(2) of the Rules of Civil Practice relates to a plaintiff’s right to come into Court, and not to his possessing a cause of action. Id at 660-661, 610.

The Court then quotes Kittinger v Churchill for the principle that,

“The provision for dismissal of the complaint where the plaintiff has not the capacity to sue (Rules of Civil Practice, rules 106, 107) has reference to some legal disability, such as infancy, or lunacy, or want of title in the plaintiff to the character in which he sues. There is a difference between capacity to sue, which gives the right to come into court, and possession of a cause of action, which gives the right to relief in court. Ward v. Petrie, 157 NY 301, 51 N.E. 1002; Bank of Havana v. Magee, 20 NY 355; Ullman v. Cameron, 186 NY 339, 78 N.E. 1074. The plaintiff is an individual suing as such. He is under no disability, and sues in no representative capacity. He is entitled to bring his suits before the court, and to cause a summons to be issued, the service of which upon the defendants brings the defendants into court. There is no lack of capacity to sue.’

Similarly here. By not receiving delivery of the bond and mortgage it may be urged that the plaintiff did not get title to them under the assignment—but that does not mean that it can be asserted that the plaintiff is not sui juris and therefore has no capacity to sue.” Id at 661, 610-611.

The defense that Plaintiff herein does not own the note and mortgage is not one of standing based on lack of legal capacity pursuant to CPLR 3211(a)(3). [*5]

The other meaning of standing involves whether the party bringing the suit has a sufficient interest in the dispute. Some cases have held that in this context, standing is jurisdictional, reasoning that where there is no aggrieved party, there is no genuine controversy, and where there is no genuine controversy, there is no subject matter jurisdiction. Stark v Goldberg, 297 AD2d 203, 204(1st Dept 2002); Axelrod v New York State Teachers’ Retirement Sys., 154 AD2d 827, 828 (3rd Dept 1989).

However, the Second Department has held that the jurisdiction of the court to hear the controversy is not affected by whether the party pursuing the action is, in fact, a proper party. They have held that if not raised in the answer or pre-answer motion to dismiss, the defense that the a party lacks standing is waived. Wells Fargo Bank Minnesota, Nat. Ass’n v. Perez, 70 AD3d 817, 818, 894 N.Y.S.2d 509, 510 (2nd Dept 2010), Countrywide Home Loans, Inc. v. Delphonse, 64 AD3d 624, 625, 883 N.Y.S.2d 135 (2nd Dept 2009), HSBC Bank, USA v. Dammond, 59 AD3d 679, 680, 875 N.Y.S.2d 490 (2nd Dept 2009).

The issue of whether a Plaintiff owns the mortgage and note is a different question from whether it has an interest in the dispute. Whether a party has a sufficient interest in the dispute is determined by the facts alleged in the complaint, not whether Plaintiff can prove the allegations. Wall St. Associates v. Brodsky, 257 AD2d 526, 684 N.Y.S.2d 244 (1st Dept 1999), Kempf v. Magida, 37 AD3d 763, 764, 832 N.Y.S.2d 47, 49 (2nd Dept 2007). For the purpose of determining whether a party has sufficient interest in the case the allegations are assumed to be true.

This issue is not analogous to the issue of whether citizens have standing to seek judicial intervention in response to what they believe to be governmental actions which would impair the rights of members of society, or a particular group of citizens, (e.g. Schulz v. State, 81 NY2d 336, 343, 615 N.E.2d 953, 954 (1993), or whether registered voters have standing to challenge the denial of the right to vote in a referendum pursuant to Section 11 of Article VII of the State Constitution, or whether commercial fishermen have standing to complain of the pollution of the waters from which they derive their living, see also Leo v. Gen. Elec. Co., 145 AD2d 291, 294, 538 N.Y.S.2d 844, 847 (2nd Dept 1989). The issue of standing in these types of cases turn on whether the claimants have an interest sufficiently distinct from society in general.

Foreclosure actions implicate a concrete interest specific to a plaintiff, and the determination must be made as to whether it has been aggrieved and is therefore entitled to receive monetary damages for the alleged breach of the law.

The Plaintiff herein pled that it owns the note and mortgage and asserts the right to foreclose on the mortgage which it asserts is in default. If it is successful in proving its claims, then it is entitled to receive the proceeds of the sale of the mortgaged property.The objection that the Plaintiff in fact does not own the note and mortgage is not a defense based on a lack of standing.Here Defendant does not say insufficient facts were alleged. Defendant’s argument is that the facts alleged are not true. It is not a question of whether the Plaintiff has alleged a sufficient interest in the dispute, but of whether Plaintiff can prove its prima facie case. [*6]

Unlike standing, denial of a Plaintiff’s claim that it owns the note and mortgage is not an affirmative defense because it is a denial of an allegation in the complaint that is an element of Plaintiff’s cause of action.

In a foreclosure case, the Plaintiff must plead and prove as part of its prima facie case that it owns the note and mortgage and has the right to foreclose. Wells Fargo Bank, N.A., 80 AD3d 753, 915 N.Y.S.2d 569 (2d Dept 2011); Argent Mtge. Co., LLC v. Mentesana, 79 AD3d 1079, 915 N.Y.S.2d 591 (2d Dept 2010); Campaign v Barba, 23 AD3d 327, 805 NYS2d 86 (2nd Dept 2005).Defendant herein filed a pro se answer containing a general denial, which is a denial of all of Plaintiff’s allegations, including the allegation in paragraph 11 that it owns the note.

CPLR 3018(b) provides that an affirmative defense is any matter “which if not pleaded would be likely to take the adverse party by surprise” or “would raise issues of fact not appearing on the face of a prior pleading”.

CPLR 3018(b) also lists some common affirmative defenses, although the list is not exhaustive. The list of affirmative defenses in CPLR 3018(b) are those which raise issues such as res judicata or statute of limitations which are based on facts not previously alleged in the pleadings.

Affirmative defenses are those which posit that the adverse party is not entitled to relief, by reason of excuse or exception, even assuming the truth of the allegations made in the complaint.

“The defendant has the burden of proof of affirmative defenses, which in effect assume the truth of the allegations of the complaint and present new matter in avoidance thereof.” 57 NY Jur. 2d Evidence and Witnesses 165.

Defendant’s general denial asserts that Plaintiff is not entitled to relief because the facts alleged in the complaint are not true.

In Hoffstaedter v. Lichtenstein, 203 App.Div. 494, 496, 196 N.Y.S. 577 (1st Dept 1922), the First Department held that the general denial put the allegations in the plaintiff’s complaint in issue. In that case, the defendant executed a note in favor of the plaintiff as a promise to pay for certain goods. When plaintiff brought an action to recover on the note, the defendant answered with a general denial. It went on to state that “[i]t is elementary that under a general denial a defendant may disprove any fact which the plaintiff is required to prove to establish a prima facie cause of action.” Id., at 578.

The Court of Appeals cited Hoffstaedter v. Lichtenstein in holding that a general denial puts in issue those matters already pled. Munson v. New York Seed Imp. Co-op., Inc., 64 NY2d 985, 987, 478 N.E.2d 180, 181 (1985).The general denials contained in the answer enable defendant to controvert the facts upon which the plaintiff bases her right to recover. Strook Plush Company v. Talcott, 129 AD 14, 113 NYS 214 (2nd Dept 1908). A general denial is sufficient to challenge all of the allegations in a complaint. Bodine v. White, 98 NYS 232, 233 (App. Term 1906).The Second Department in Gulati v. Gulati, 60 AD3d 810, 811-12, 876 N.Y.S.2d 430, 432-33 (2nd Dept 2009), held it was that where a claim would not take the plaintiff by surprise and “does not raise issues of fact not [*7]appearing on the face of the complaint”, a denial of the allegations in the plaintiff’s complaint was sufficient. It held that where the plaintiff alleged as an element of her prima facie case that the defendant abandoned the marital residence without cause or provocation, and the defendant denied these allegations in his answer, defendant did not need to further allege abandonment as an affirmative defense.

The Fourth Department in Stevens v. N. Lights Associates, 229 AD2d 1001, 645 N.Y.S.2d 193, 194 (4th Dept 1996), found that a denial by defendant that it was in control of the premises where plaintiff fell did not need to be separately pled as a defense, as the denial of control did not raise any issue of fact which had not already been pled in the complaint. See also Scully v. Wolff, 56 Misc. 468, 107 N.Y.S. 181 (App. Term 1907), Bodine v. White, 98 N.Y.S. 232 (App. Term 1906).

In this case, Defendant’s contesting Plaintiff’s claim in the complaint that it owns the note and mortgage could not take the Plaintiff by surprise as a general denial contests Plaintiff’s factual allegations in the complaint itself, and does not rely upon extrinsic facts.Since ownership of the note was pled in the complaint and is an element of the Plaintiff’s cause of action, Defendant did not waive the defense that Plaintiff did not own the note, because he made a general denial to the factual allegations contained in the complaint.

In fact, the identity of the owner of the note and mortgage is information that is often in the exclusive possession of the party seeking to foreclose. Mortgages are routinely transferred through MERS, without being recorded. The notes underlying the mortgages, as negotiable instruments, are negotiated by mere delivery without a recorded assignment or notice to the borrower. A defendant has no method to reliably ascertain who in fact owns the note, within the narrow time frame allotted to file an answer. In light of these facts and the fact that Defendant contested the factual allegations asserted in Plaintiff’s pleading, Defendant’s general denial is sufficient to contest whether Plaintiff owns the note and mortgage.

In response to Plaintiff’s motion, Defendant contends that Plaintiff is not entitled to summary judgment as it does not own the note and mortgage, because the purported transfer to Plaintiff was void as it violated the terms of the PSA which governs acquisitions by the Trust.

The Plaintiff in this case is Trustee of an asset backed certificate trust. The trust acquires mortgages, pools them and then issues securities secured or backed by the mortgages it holds. The investors receive interest or principle, or both, from the mortgages assigned to those specific securities or obligations.

The manner in which the trust acquires the mortgages, issues the securities and pays the income from the mortgages to investors, is governed by the trust’s pooling and servicing agreement (PSA).

The Plaintiff trust is organized as a Real Estate Mortgage Investment Conduit (REMIC). As a REMIC, the trust’s investors receive significant tax benefits, but to receive those benefits, the trust must comply with the US Treasury regulations governing REMICS. [*8]26 USCA §860-D-1. The terms of the PSA require that the trust does not operate or take any action that would jeopardize its REMIC status. Section 9.01(f) of the PSA.

Article 9 of the PSA, section 9.01(b) provides that the closing date is designated as the “start up day” of each REMIC, and lists the closing date as November 14, 2006. Pursuant to 26 USCA §860-G-(b)(9), the “start up day” of a REMIC is the day upon which the REMIC issues all of its regular and residual interests.

The PSA specifically requires the Depositor to have transferred all of the interest in the mortgage notes to the Trustee on behalf of the trust as of the closing date. PSA Article II, Section 2.05 (iii).

Plaintiff asserts that the transfer of the note herein is void because the note was acquired after the closing date in violation of the terms of the PSA.

Mere recital of assignment, holding or receipt of an asset is insufficient to transfer an asset to a trust. The grantor must actually transfer the asset. EPTL §7-1.18.

The assignment of the note and the mortgage which affected the transfer was dated July 16, 2008, however, pursuant to the terms of the PSA the trust closed on November 14, 2006.

Section 9.02 of the PSA specifically prohibits the acquisition of any asset for a REMIC part of the fund after the closing date unless the party permitting the acquisition and the NIMS (net interest margin securities) Insurer have received an Opinion letter from counsel, at the party’s expense, that the acceptance of the asset will not affect the REMIC’s status. No such letter has been provided to show compliance with the requirements of the PSA.Plaintiff has provided no evidence that the trustee had authority to acquire the note and mortgage herein after the trust had closed.

Since the trustee acquired the subject note and mortgage after the closing date, the trustee’s act in acquiring them exceeded its authority and violated the terms of the trust.The acquisition of a mortgage after 90 days is not a mere technicality but a material violation of the trust’s terms, which jeopardizes the trust’s REMIC status.

Section 9.01(f) of the PSA provides that neither the Trustee, the Servicer or Holder of the Certificates shall cause any REMIC formed under the PSA, by action or omission, to endanger the status of the REMIC or cause any imposition of tax upon the REMIC.

Since the trust was organized as a REMIC, the investors received certain tax benefits on the income that passed through the trust to them. Section 26 U.S.C.A. § 860D(a)(4) defines a REMIC as an entity that

as of the close of the 3rd month beginning after the startup day and at all times thereafter, substantially all of the assets of which consist of qualified mortgages and permitted investments.

(A) any obligation (including any participation or certificate of beneficial ownership therein) which is principally secured by an interest in real property and which (I) is transferred to the REMIC on the startup day in exchange for regular or residual interests in the REMIC,

(ii) is purchased by the REMIC within the 3-month period beginning on the startup day if, except as provided in regulations, such purchase is pursuant to a fixed-price contract in effect on the startup day.

Thus to qualify for the REMIC tax benefits, the mortgages upon which the securities are based must be acquired by the Trust within three months of its start up date.

While section 26 U.S.C.A. § 860D(a)(4) permits a REMIC to contain some portion of non qualified mortgages, it is unclear how many unqualified mortgages are permitted without losing tax status. It is clear, however, that the late acquisition violates the terms of the PSA.

Under New York Trust Law, every sale, conveyance or other act of the trustee in contravention of the trust is void. EPTL §7-2.4. Therefore, the acceptance of the note and mortgage by the trustee after the date the trust closed, would be void.

Conveyance from the Depositor to the Trust

Defendant also argues that the Trustee violated the terms of the trust by acquiring the note directly from the sponsor’s successor in interest rather than from the Depositor, ABFC, as required by the PSA.

In Article II, section 2.01 Conveyance of Mortgage Loans, the PSA requires that the Depositor deliver and deposit with the Trustee the original note, the original mortgage and an original assignment . The Trustee is then obligated to provide to the Depositor an acknowledgment of receipt of the assets before the closing date. PSA Article II, Section 2.01.

The rationale behind this requirement is to provide at least two intermediate levels of transfer to ensure the assets are protected from the possible bankruptcy by the originator which permits the security to be provided with the rating required for the securitization to be saleable. Deconstructing the Black Magic of Securitized Trusts, Roy D. Oppenheim Jacquelyn K. Trask-Rahn 41 Stetson L. Rev. 745 Stetson Law Review (Spring 2012).

Here the note and mortgage were purportedly assigned from Option One to the Plaintiff, without having been transferred to, and then from, the Depositor.

The assignment of the note and mortgage from Option One rather than from the Depositor ABFC violates section 2.01of the PSA which requires that the Depositor deliver to and deposit the original note, mortgage and assignments to the Trustee.

The assignment of the Defendant’s note and mortgage, having not been assigned from the Depositor to the Trust, is therefore void as in being in contravention of the PSA.The evidence submitted by Defendant that the note was acquired after the closing date and that assignment was not made by the Depositor, is sufficient to raise questions [*10]of fact as to whether the Plaintiff owns the note and mortgage, and precludes granting Plaintiff summary judgment.

WHEREFORE, Plaintiff’s motion for summary judgment is denied. This shall constitute the decision and Order of this Court.

THE COURT: Okay. Mr. Boyle, do you still have the plaintiff’s exhibit that Ms. Dao gave you? Look at the last page of the note on that one and compare it to the last page of the note in Exhibit 1.

Do you see how the signature line, “Pay to the order of without recourse” has moved from the far left on one document, and it’s on sort of the center right on the other document?

47

THE WITNESS: Yes, I see that.

THE COURT:Do you have any explanation for how that might have happened in the copying, or anything like that?

THE WITNESS: I don’t know.

THE COURT: Okay.

MS. DAO: Thank you, Your Honor.

Q (By Ms. Dao) So your testimony is that Exhibit 1 is a true and exact copy of the original note, as you’re sitting here on the stand today?

A Yes. That was my testimony in the declaration.

THE COURT: You looked at it yesterday. Do you remember where this line was?

THE WITNESS: No, I didn’t compare the two.

THE COURT: Counsel, as an officer of the court, could you represent to me where the signature is on the original?

MS. VACURA: Yes, Your Honor.

THE COURT: It’s on the center right?

MS. VACURA: Yes.

MS. DAO: Thank you, Your Honor.

76

Q (By Ms. Dao)We have discovered today that there are two versions of the original note. Are you now aware of that?

THE COURT: Well, you can leave the preamble out. You’re talking about the last page in the moving —

MS. DAO: Yes.

THE COURT: Okay. Do you have any explanation for that?

THE WITNESS: I know that in certain cases at origination there’s a copy of the note that’s made. You know, there’s several copies of the original note that are made, andsometimes, you know, it can be endorsed.

What I know is that the original note that Deutsch was holding was the one that we produced as the correct and true copy.

THE COURT: With the center right signature?

THE WITNESS: Yes, correct.

Q (By Ms. Dao) So you really can’t account for — well, let me ask you this question: Can the court be assured that whenever there’s a document that has been represented either by you or by your counsel that it is a true and exact copy, the court can rely upon that representation?

This is the Bill everyone should be pushing very hard to get enacted. Enough with taxpayers getting plummeted for the fraudulent acts behind this machine and Wall Street! Enough with the fraudulent bailouts the government continues to provide these cartels. Enough is Enough!

Marcy Kaptur has never once gave up on this bill and neither should you.Make this Bill go viral…make it happen.

HR 189 IH

113th CONGRESS

1st Session

H. R. 189

.

To prohibit Fannie Mae, Freddie Mac, and Ginnie Mae from owning or guaranteeing any mortgage that is assigned to the Mortgage Electronic Registration Systems or for which MERS is the mortgagee of record.

IN THE HOUSE OF REPRESENTATIVES

January 4, 2013

Ms. KAPTUR introduced the following bill; which was referred to the Committee on Financial Services

A BILL

To prohibit Fannie Mae, Freddie Mac, and Ginnie Mae from owning or guaranteeing any mortgage that is assigned to the Mortgage Electronic Registration Systems or for which MERS is the mortgagee of record.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘Transparency and Security in Mortgage Registration Act of 2013’.

SEC. 2. PROHIBITION ON GUARANTEEING MERS MORTGAGES.

(a) Fannie Mae and Freddie Mac-

(1) FANNIE MAE- Section 302(b) of the National Housing Act (12 U.S.C. 1717(b)) is amended by adding at the end the following new paragraph:

‘(7)(A) After the date of the enactment of the Transparency and Security in Mortgage Registration Act of 2013, the corporation may not purchase, acquire, newly lend on the security of, newly invest in securities consisting of, or otherwise newly deal in any MERS mortgage or mortgages.

‘(B) After the expiration of the period under subparagraph (C), MERS shall not be the named mortgagee or mortgagee of record on any mortgage owned, guaranteed, or securitized by the corporation. Not later than the expiration of such period, the corporation shall require that all mortgage loans owned, guaranteed, or securitized at such time by the corporation and on which MERS is the named mortgagee or mortgagee of record shall be assigned to the servicer, holder, or creditor, as defined by the guidelines of the corporation. The corporation shall not reimburse the servicer, holder, or creditor for any expense incurred in the carrying out or recording such an assignment.

‘(C)(i) Except as provided in clause (ii), the period under this subparagraph is the 6-month period beginning on the date of the enactment of the Transparency and Security in Mortgage Registration Act of 2013.

‘(ii) In the case of any mortgage owned, guaranteed, or securitized by the corporation for which the servicer, holder, or creditor has demonstrated to the corporation, in accordance with standards established by the Director of the Federal Housing Finance Agency, that compliance with subparagraph (B) by the expiration of such 6-month period will cause a severe threat to the continued financial viability of such entity, the period under this subparagraph shall be the period that begins on such date of enactment and has such duration as determined by the corporation, in accordance with standards established by the Director, but in no case has a duration longer than 12 months.

‘(D) Not later than the expiration of the 6-month period referred to in subparagraph (C)(i), the corporation shall submit a report detailing its compliance with subparagraph (B) to the Congress, the Director of the Federal Housing Finance Agency, the Financial Stability Oversight Council, and the Director of the Bureau of Consumer Financial Protection of the Federal Reserve System, which shall describe any extensions of the period for compliance with subparagraph (B) granted pursuant to subparagraph (C).

‘(E) For purposes of this paragraph, the following definitions shall apply:

‘(i) The term ‘MERS’ means the Mortgage Electronic Registration Systems, Inc., or any successor entity of such corporation.

‘(ii) The term ‘MERS mortgage’ means any mortgage–

‘(I) for which the MERS is, or was at any time, the original or nominal mortgagee or mortgagee of record under the mortgage;

‘(II) that is, or was at any time, assigned to or recorded in the MERS; or

‘(III) for which the MERS is, or was at any time, acting as nominee in the county land records for the lender or servicer of the mortgage.’.

(2) FREDDIE MAC- Section 305(a) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)) is amended by adding at the end the following new paragraph:

‘(6)(A) After the date of the enactment of the Transparency and Security in Mortgage Registration Act of 2013, the Corporation may not purchase, acquire, newly lend on the security of, newly invest in securities consisting of, or otherwise newly deal in any MERS mortgage or mortgages.

‘(B) After the expiration of the period under subparagraph (C), MERS shall not be the named mortgagee or mortgagee of record on any mortgage owned, guaranteed, or securitized by the Corporation. Not later than the expiration of such period, the Corporation shall require that all mortgage loans owned, guaranteed, or securitized at such time by the Corporation and on which MERS is the named mortgagee or mortgagee of record shall be assigned to the servicer, holder, or creditor, as defined by the guidelines of the Corporation. The Corporation shall not reimburse the servicer, holder, or creditor for any expense incurred in the carrying out or recording such an assignment.

‘(C)(i) Except as provided in clause (ii), the period under this subparagraph is the 6-month period beginning on the date of the enactment of the Transparency and Security in Mortgage Registration Act of 2013.

‘(ii) In the case of any mortgage owned, guaranteed, or securitized by the Corporation for which the servicer, holder, or creditor has demonstrated to the Corporation, in accordance with standards established by the Director of the Federal Housing Finance Agency, that compliance with subparagraph (B) by the expiration of such 6-month period will cause a severe threat to the continued financial viability of such entity, the period under this subparagraph shall be the period that begins on such date of enactment and has such duration as determined by the Corporation, in accordance with standards established by the Director, but in no case has a duration longer than 12 months.

‘(D) Not later than the expiration of the 6-month period referred to in subparagraph (C)(i), the Corporation shall submit a report detailing its compliance with subparagraph (B) to the Congress, the Director of the Federal Housing Finance Agency, the Financial Stability Oversight Council, and the Director of the Bureau of Consumer Financial Protection of the Federal Reserve System, which shall describe any extensions of the period for compliance with subparagraph (B) granted pursuant to subparagraph (C).

‘(E) For purposes of this paragraph, the following definitions shall apply:

‘(i) The term ‘MERS’ means the Mortgage Electronic Registration Systems, Inc., or any successor entity of such corporation.

‘(ii) The term ‘MERS mortgage’ means any mortgage–

‘(I) for which the MERS is, or was at any time, the original or nominal mortgagee or mortgagee of record under the mortgage;

‘(II) that is, or was at any time, assigned to or recorded in the MERS; or

‘(III) for which the MERS is, or was at any time, acting as nominee in the county land records for the lender or servicer of the mortgage.’.

(3) REGULATIONS- Not later than the expiration of the 90-day period beginning on the date of the enactment of this Act, the Director of the Federal Housing Finance Agency shall issue any regulations necessary to carry out the amendments made by paragraphs (1) and (2). In issuing such regulations, the Director shall consult and coordinate with the Secretary of Housing and Urban Development to ensure that the regulations issued by the Director and the regulations issued by the Secretary pursuant to subsection (b)(2) of this section are uniform and consistent to maximum extent possible.

(b) Ginnie Mae-

(1) PROHIBITION- Section 302(c) of the National Housing Act (12 U.S.C. 1717(c)) is amended by adding at the end the following new paragraph:

‘(6)(A) After the date of the enactment of the Transparency and Security in Mortgage Registration Act of 2013, the Association may not newly guarantee the payment of principal of or interest on any trust certificate or other security based or backed by a trust or pool that contains, or purchase or acquire, any MERS mortgage.

‘(B)(i) After the expiration of the period under subparagraph (C), MERS shall not be the named mortgagee or mortgagee of record on any mortgage owned or held by the Association or on any mortgage contained in a pool backing or on which is based any trust certificate or other security the payment of principal of or interest on which is guaranteed by the Association.

‘(ii) Not later than the expiration of such period, the Association shall require that all mortgage loans that are owned or held at such time by the Association, or that at such time are contained in a trust or pool backing or on which is based a trust certificate or other security the payment of principal of or interest on which is guaranteed by the Association, and on which MERS is the named mortgagee or mortgagee of record, shall be assigned to the servicer, holder, or creditor, as defined by the guidelines of the Association. The Association shall not reimburse the servicer, holder, or creditor for any expense incurred in the carrying out or recording such an assignment.

‘(C)(i) Except as provided in clause (ii), the period under this subparagraph is the 6-month period beginning on the date of the enactment of the Transparency and Security in Mortgage Registration Act of 2013.

‘(ii) In the case of any mortgage owned or held by the Association, or contained in a trust or pool backing or on which is based a trust certificate or other security the payment of principal of or interest on which is guaranteed by the Association, for which the servicer, holder, or creditor has demonstrated to the Association, in accordance with standards established by the Secretary, that compliance with subparagraph (B) by the expiration of such 6-month period will cause a severe threat to the continued financial viability of such entity, the period under this subparagraph shall be the period that begins on such date of enactment and has such duration as determined by the Association, in accordance with standards established by the Secretary, but in no case has a duration longer than 12 months.

‘(D) Not later than the expiration of the 6-month period described in subparagraph (C)(i), the Association shall submit a report detailing its compliance with subparagraph (B) to the Congress, the Secretary, the Financial Stability Oversight Council, and the Director of the Bureau of Consumer Financial Protection of the Federal Reserve System, which shall describe any extensions of the period for compliance with subparagraph (B) granted pursuant to subparagraph (C).

‘(E) For purposes of this paragraph, the following definitions shall apply:

‘(i) The term ‘MERS’ means the Mortgage Electronic Registration Systems, Inc., or any successor entity of such corporation.

‘(ii) The term ‘MERS mortgage’ means any mortgage–

‘(I) for which the MERS is, or was at any time, the original or nominal mortgagee or mortgagee of record under the mortgage;

‘(II) that is, or was at any time, assigned to or recorded in the MERS; or

‘(III) for which the MERS is, or was at any time, acting as nominee in the county land records for the lender or servicer of the mortgage.’.

(2) REGULATIONS- Not later than the expiration of the 90-day period beginning on the date of the enactment of this Act, the Secretary of Housing and Urban Development shall issue any regulations necessary to carry out the amendments made by paragraphs (1) and (2). In issuing such regulations, the Secretary shall consult and coordinate with the Director of the Federal Housing Finance Agency to ensure that the regulations issued by the Secretary and the regulations issued by the Director pursuant to subsection (a)(3) of this section are uniform and consistent to maximum extent possible.

SEC. 3. HUD STUDY.

(a) Study- The Secretary of Housing and Urban Development, in consultation with the Comptroller General of the United States, shall conduct a study to analyze and determine–

(1) the impacts of the lack of electronic records and uniform standards found in local land title recordation systems currently used in the various States;

(2) any progress States have made in developing electronic land title recordation systems for their localities that contain uniform standards, and any findings and conclusions and best practices resulting from such development;

(3) the current oversight role of the Federal Government in the transfer and recordation of land titles;

(4) opportunities, and the feasibility of such opportunities, that may be present to leverage progress made by some States and localities to create an electronic land title recordation system, including through–

(A) a system that would maintain all previous records of the land-property without invalidating, interfering with, or preempting State real property law governing the transfer and perfection of land title; and

(B) further actions by the States or by the Federal Government, or coordinated actions of both; and

(5) the feasibility of creating a Federal land title recordation system for property transfers that would maintain all previous records of the land-property without invalidating, interfering with, or preempting State real property law governing the transfer and perfection of land title.

(b) Report- Not later than the expiration of the 12-month period beginning on the date of the enactment of this Act, the Secretary of Housing and Urban Development, in consultation with the Comptroller General of the United States, shall submit to the Congress a report on the results and findings of the study conducted under this section.

FNIS also challenges Plaintiff’s claim against it for violation of the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”), Fla. Stat. § 501.204(1)(2001), for failure to state a claim upon which relief may be granted. FDUTPA’s purpose is to protect the consuming public and legitimate business enterprises from unlawful and deceptive acts. Fla. Stat. § 501.202(2). A claim for damages under FDUTPA has three elements: (1) a deceptive act or unfair practice; (2) causation; and (3) actual damages. Virgilio v. Ryland Group, Inc., 680 F.3d 1329, 1338 n.25 (11th Cir. 2012) (quoting Rollins, Inc. v. Butland, 951 So. 2d 860, 869 (Fla. Dist. Ct. App. 2006)). A practice is unfair under FDUTPA if it “offends established public policy” or is “immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers. PNR, Inc. v. Beacon Prop. Mgmt., Inc., 842 So. 2d 773, 777 (Fla. 2003). Here, Plaintiff alleges that Defendants, including FNIS, violated FDUTPA by using fake identities and manufactured documents to deprive her of her homestead through foreclosure of a debt that was not in default3 prior to inception of the foreclosure cases. (Dkt. 2, ¶¶ 16-19.) The First Amended Complaint alleges that FNIS’s business of preparing forged documents using fictitious identities was an unfair and deceptive practice. (Id.) Plaintiff identifies FNIS and the other LPS Defendants as being directly or vicariously liable for the alleged fraudulent acts that caused her to lose her homestead. (Id. at ¶¶ 11-42.) Plaintiff’s allegations are sufficient to withstand a Rule 12(b)(6) dismissal motion. She must be afforded the opportunity to prove the allegations through the discovery process.

FNIS further argues that Plaintiff fails to state a clam under the Fair Debt Collection Practices Act (“FDCPA”) because FNIS was neither owed any part of the loan debt nor did it attempt to collect any money from Plaintiff on the loan in question. Notwithstanding, 15 U.S.C. §1692(a)(6) defines the term “debt collector” to include any person who uses an instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests. The Eleventh Circuit has recently clarified that mortgage foreclosure can be debt collection under the FDCPA. Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211 (11th Cir. 2012); Birster v. Am. Home Mortg. Servicing, Inc., 2012 WL 2913786 (11th Cir. Jul. 18, 2012). Plaintiff alleges that FNIS and its alter egos, the LPS Defendants, fabricated documents in furtherance of a conspiracy to unlawfully divest Plaintiff of her homestead. (Dkt. 2, ¶¶16, 18(a), 18(d)(1, 4-7), footnote 3.) She alleges that Goebel oversees a section of individuals who produce thousands of sworn affidavits a day for filing in state and federal litigation brought by FNF clients and several boilerplate documents used in the foreclosure of Plaintiff’s home. (Id. at ¶ 16.) Furthermore, under 15 U.S.C. § 1692f, “[a] debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Subparagraph (6) of that section specifically prohibits taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if there is no present right to possession of the property claimed as collateral through an enforceable security interest. Consequently, this Court must find that Plaintiff’s allegations present a question of fact as to whether FNIS’s activities violated the FDCPA, and she must be allowed the opportunity to establish those facts through the course of discovery.

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT _________________BETTY WALLACE, Plaintiff-Appellant,

v.

WASHINGTON MUTUAL BANK, F.A.;WELLS FARGO BANK N.A., Defendants,

LERNER, SAMPSON & ROTHFUSS, Defendant-Appellee. No. 10-3694

Appeal from the United States District Court for the Southern District of Ohio at Cincinnati. No. 1:09-cv-481—Sandra S. Beckwith, District Judge. Decided and Filed: June 26, 2012 Before: MERRITT and MOORE, Circuit Judges; MAYS, District Judge.* _________________ COUNSEL

MERRITT, Circuit Judge. Washington Mutual foreclosed on property before receiving an assignment and transfer of the promissory note and the delinquent home mortgage and before recording it in the Warren County, Ohio, Recorder’s Office.

Because Washington Mutual did not own the mortgage, the homeowner and mortgagor, plaintiff Betty Wallace, brought a lawsuit for an allegedly false claim of ownership under the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seq., against the law firm of Lerner, Sampson and Rothfuss, acting for the purported mortgagee, Washington Mutual, in the foreclosure action.1 Plaintiff claims that defendant law firm violated the Act, the Ohio Consumer Sales Practices Act, and intentionally inflicted emotional distress on her under Ohio law when the foreclosure action was filed against her claiming that Washington Mutual was the holder of her mortgage, a fact plaintiff alleges was completely false at the time of the foreclosure filing because, as stated above, the mortgage had not been assigned or recorded at that time. The district court dismissed her complaint under Federal Rule of Civil Procedure 12(b)(6), finding that she did not state a claim under the Act. The district court then declined to exercise supplemental jurisdiction as to the state claims. The relevant portions of the complaint at issue are as follows:

11. On information and belief, at some point after April 2008, Wells Fargo sold or transferred the note and mortgage to WaMu. Although it transferred its ownership interest in the note and mortgage, Wells Fargo still serviced the loan on behalf of WaMu. This meant that Wells Fargo collected the payments and provided other services in managing the mortgage loan. It also made all decisions regarding the collection of the note and enforcement of WaMu’s rights under the mortgage. At all times after the transfer of ownership of the note and mortgage, Wells Fargo acted as WaMu’s agent with respect to the Plaintiff’s loan.

The complaint then alleged that the law firm filed a foreclosure action containing false assertions when it claimed that Washington Mutual was the owner:

12. On July 11, 2008, WaMu, through its attorney, LSR, and based on the decision of Wells Fargo, instituted the Foreclosure Case. In the Complaint, WaMu asserted that it was the holder of the note. That assertion was false when made. It also asserted that the mortgage had been assigned to it and that it was the holder of the mortgage. Those assertions were false when made. The mortgage was actually assigned by Wells Fargo to WaMu on August 14, 2008 by an instrument recorded at Book 4731, Page 91 [sic – the actual page is 90] of the Warren County, Ohio Recorder’s Office. At the time the Complaint was filed in the foreclosure case, all defendants knew that WaMu was not the holder of the note; that WaMu was not the holder of the mortgage; and that the mortgage had not been assigned to WaMu.

Complaint at ¶¶ 11-12 (emphasis added) (R. 2).

Plaintiff also sued other entities at the same time, but appealed the decision below only as to defendant law firm Lerner, Sampson & Rothfuss. Lerner, Sampson does not dispute that it is a “debt collector” under the Act. Plaintiff does not pursue her original claims against Washington Mutual and Wells Fargo on appeal. She appeals only the dismissal of Count III of her complaint, the claim that alleged that the law firm used “false, deceptive or misleading representations” in connection with the collection of any debt in violation of 15 U.S.C. § 1692e.

I.

For purposes of the motion to dismiss the complaint, we take the following facts as true. In 1999, plaintiff purchased a home in Waynesville, Ohio, with a mortgage originating with Norwest Mortgage. Plaintiff signed a promissory note in the amount of $66,000 and gave a mortgage to Norwest to secure the note. Norwest and Wells Fargo later merged and plaintiff began making her payments to Wells Fargo. In March or April 2008, Wells Fargo notified plaintiff that she was delinquent on her mortgage, although she was not yet delinquent at that time. Complaint at ¶ 10. (R.2). On August 14, 2008, Wells Fargo transferred and recorded the note and the delinquent mortgage to Washington Mutual. On July 11, 2008, more than a month before the transfer and assignment, Washington Mutual, through its attorneys, Lerner, Sampson & Rothfuss, filed a foreclosure action against plaintiff in the Warren County Court of Common Pleas in Ohio, asserting that Washington Mutual was the holder of the note and the mortgage.

The problem in this case arises from the fact that the recordation and transfer of ownership of the note and mortgage to Washington Mutual did not occur until August 14, 2008, a little more than a month after Washington Mutual filed the foreclosure action asserting that it owned the mortgage. An Ohio appellate court has so found. Washington Mutual Bank, N.A. v. Wallace, 194 Ohio App. 3d 549, 559, 2011-Ohio-4174, 957 N.E.2d 92, 99 (Ohio Ct. App.) (“[I]t is undisputed that [Washington Mutual] became the real party in interest in the foreclosure action 34 days later on August 14, 2008, when . . . Wells Fargo executed a written assignment of Wallace’s note and mortgage to [Washington Mutual]”.), appeal allowed by 130 Ohio St. 3d 1493, 2011-Ohio-6556, 958 N.E.2d 956 (2011) (briefing stayed pending resolution of Fed. Home Loan Mortg. Corp. v. Schwartzwald, 194 Ohio App. 3d 644, 2011-Ohio-2681, 957 N.E.2d 790 (Ohio Ct. App.), motion to certify and appeal allowed by 129 Ohio St. 3d 1488, 2011-Ohio-5129, 954 N.E.2d 661 (Ohio Oct. 5, 2011)). Plaintiff did not respond to the foreclosure notice, and a default judgment was entered against her on August 20, 2008. A sheriff’s auction of her home was scheduled for December 8, 2008. When plaintiff learned of the sale, she contacted Lerner, Sampson and tried to arrange to pay off the loan. When her attempts to work out the loan were unsuccessful, plaintiff contacted Pro Seniors, an organization that provides free legal services to senior citizens. She was able to get the sale postponed. On December 15, 2008, defendants petitioned the state court to set another sale date, which it did for late February or early March 2009. It appears from the docket sheet in the foreclosure action that plaintiff’s home has since been sold at auction. Journal Entry Confirming Sale in Washington Mutual Bank v. Wallace, 08-cv-71941 (Warren Cnty. [Ohio] Ct. of Common Pleas Jan. 24, 2011) (found at http://www.co.warren.oh.us/clerkofcourt/search).

Plaintiff filed her complaint in this action in July 2009, alleging that Lerner, Sampson and the banks violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., as well as the Ohio Consumer Sales Practices Act, Ohio Rev. Code § 1345.01 et seq., when Lerner, Sampson filed the foreclosure complaint against plaintiff in state court on behalf of Washington Mutual. The district court found that plaintiff failed to state a claim under the Fair Debt Collection Practices Act because the failure to record an Assignment of Mortgage before filing a foreclosure action is not a deceptive practice under the Act. The single issue before us is whether the filing of foreclosure action by the law firm claiming ownership of the mortgage by its client Washington Mutual constitutes a “false, deceptive or misleading representation” under the Fair Debt Collection Practices Act when the bank has not received a transfer of the ownership documents. We hold that the complaint states a valid claim and reverse the dismissal of the case.

II.

The Fair Debt Collection Practices Act prohibits a debt collector from the use of “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e. Section 1692k of the statute allows the consumer to recover statutory or actual damages for violations of the Act. In order to establish a claim under § 1692e: (1) plaintiff must be a “consumer” as defined by the Act; (2) the “debt” must arises out of transactions which are “primarily for personal, family or household purposes;” (3) defendant must be a “debt collector” as defined by the Act; and (4) defendant must have violated § 1692e’s prohibitions. Whittiker v. Deutsche Bank Nat’l Trust Co., 605 F. Supp. 2d 914, 926 (N.D. Ohio 2007). Only the fourth element is at issue.

Whether a debt collector’s actions are false, deceptive, or misleading under § 1692e is based on whether the “least sophisticated consumer” would be misled by defendant’s actions. Harvey v. Great Seneca Fin. Corp., 453 F.3d 324, 329 (6th Cir. 2006). In addition, in applying this standard, we have also held that a statement must be materially false or misleading to violate Section 1692e. See Miller v. Javitch, Block & Rathbone, 561 F.3d 588, 596–97 (6th Cir. 2009) (applying a materiality standard to a Section 1692e claim that was based on alleged misstatements in legal pleadings). The materiality standard simply means that in addition to being technically false, a statement would tend to mislead or confuse the reasonable unsophisticated consumer.

Plaintiff alleges that the statement in the foreclosure complaint that Lerner, Sampson filed against her on behalf of Washington Mutual contained the false statement that Washington Mutual was the holder of her mortgage. District courts have decided, and we agree, that a clearly false representation of the creditor’s name may constitute a “false representation . . . to collect or attempt to collect any debt” under Section 1692e. Hepsen v. J.C. Christensen and Assocs., Inc., No. 8:07-CV-1935-T-EAJ, 2009 WL 3064865, at *5 (M.D. Fla. Sept. 22, 2009) (imposing liability based on a statement incorrectly identifying the name of a creditor comports with the purposes of the Act); Blarek v. Encore Receivable Mgmt., Inc., No. 06-C-0420, 2007 WL 984096, at *15 (E.D. Wis. Mar. 27, 2007) (same). Lerner, Sampson does not dispute that the foreclosure complaint identifies Washington Mutual as the actual holder of plaintiff’s mortgage, but claims that Ohio law permits Washington Mutual to anticipate that it would become the title holder after the foreclosure action was initiated but before it becomes final. We disagree that the issue of standing in Ohio, even if resolved in Lerner, Sampson’s favor, has any bearing on whether misidentifying a creditor is materially misleading under the Fair Debt Collection Practices Act.1

Plaintiff alleges that identifying Washington Mutual as the holder of the note caused her confusion and delay in trying to contact the proper party concerning payment on her loan and resolution of the problem. She alleges that she called Washington Mutual, the purported owner of the mortgage, to try to obtain information about her home loan and was told she had to have a ten-digit account number for her loan, not the account number she had from Wells Fargo. Plaintiff also alleges that her daughter ultimately contacted an attorney, as well as the Ohio Attorney General’s Office, in an attempt to stop the sale of plaintiff’s home and get the loan reinstated. Complaint at ¶ 15. Given these allegations, plaintiff has sufficiently alleged a material misrepresentation that would confuse or mislead an unsophisticated consumer. By reversing the district court on the Rule 12(b)(6) motion, we, of course, do not make any findings about the merits of plaintiff’s claim under the Act or any defenses that may be raised by Lerner, Sampson. We hold only that plaintiff has alleged sufficient facts to survive a motion for dismissal on the pleadings.

For the foregoing reasons, we reverse the judgment of the district court and remand for proceedings consistent with this opinion.

____________________________________________

*The Honorable Samuel H. Mays, Jr., United States District Judge for the Western District of Tennessee, sitting by designation.

1 15 U.S.C. § 1692e states in relevant part: A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section: . . . (2) The false representation of– (A) the character, amount, or legal status of any debt; or . . . (10) The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer. Plaintiff does not specify in her complaint which subsection of Section 1692e she is invoking, but we have included here the only two subsections relevant to her claim.

1The Ohio Supreme Court allowed an appeal and stayed briefing in plaintiff’s state case against Washington Mutual, Wallace v. Wash. Mut. Bank, N.A., 130 Ohio St. 3d 1493, 2011-Ohio-6556, 958 N.E.2d 956 (Dec. 21, 2011), pending resolution of Fed. Home Loan Mortg. Corp. v. Schwartzwald, 194 Ohio App. 3d 644, 2011-Ohio-2681, 957 N.E.2d 790 (Ohio Ct. App.), motion to certify and appeal allowed by 129 Ohio St. 3d 1488, 2011-Ohio-5129, 954 N.E.2d 661 (Ohio Oct. 5, 2011) (Consolidating cases and certifying a conflict in the Ohio appellate courts on the issue of whether in order to have standing as a plaintiff in a mortgage foreclosure action, a party must show that it owned the note and the mortgage when the complaint was filed.). Should the Ohio courts decide that a potential mortgagee may anticipate transfer of the note and mortgage and bring valid foreclosure proceedings in advance, the district court will have to decide the impact of such a holding on Wallace’s claim for damages under the Fair Debt Collection Practices Act. We do not agree, however, with the district courts of this Circuit that have treated the debate in Ohio over standing to bring a foreclosure action as dispositive of whether a statement was materially misleading under the Act. See, e.g., Whittiker v. Deutsche Bank Nat’l Trust Co., 605 F. Supp. 2d 914, 930-31 (N.D. Ohio 2009); Kline v. Mortg. Elec. Sec. Sys., No. 3:08cv408, 2010 WL 1133452, at *7 (S.D. Ohio Mar. 22, 2010). Certainly, should the Ohio courts decide that Washington Mutual did not have standing to bring the foreclosure action in the first place, the materiality of the false statement of ownership would be patent. However, even if Ohio holds the opposite, the Act protects the unsophisticated consumer from false statements tending to mislead or confuse—whether Washington Mutual may ultimately succeed in an Ohio court in its foreclosure action has no bearing on whether the initial false statements misled Wallace. The issue arises in the shadow of the recent subprime mortgage crises in which financial institutions are charged with encouraging reckless lending standards and rapid transfer and sale of subprime mortgages so as to profit from the mass securitization and sale of the mortgages.

One cannot step into the same river twice, Heraclitus famously declared.

Abstract: This article takes as its point of departure the financing technique referred to as “securitization,” a close cousin of secured lending that has grown to enormous size since its origin more than two decades ago. The article pursues two themes. One is a critique of the legal foundations of securitization, which includes a perspective on aspects of fraudulent transfer law that are well established historically but have been neglected in recent decades. The other is exploration of the implications of this product growing so vast despite its dubious legal foundations. In that regard, the article explores two points of legal sociology that apply to new financial products generally. The first is that a product can become so widely used that it cannot be permitted to fail, notwithstanding its dubious legal foundations. The second is that the debt rating agencies have become de facto lawmakers, because it is their decision to give a favorable rating to a financial product the credit quality of which depends on a debatable legal judgment that allows the product to grow too big to fail. Two nascent products are identified as candidates for the operation of a similar dynamic. The article ends with a normative assessment of securitization from a pragmatic perspective, concluding that legislative action is appropriate to ratify the product’s object, with constraints.

“The parties appear to have defined the word [nominee] in much the same way that the blind men of Indian legend described an elephant-their description depended on which part they were touching at any given time.” Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 166-67 (Kan. 2010).

We’re all having some issues here as far as selecting or choosing which is what or whom… so lets take a close look at the following cases that spell out the who’s what below. Perhaps its a figment of bankers imagination?

CHAMBERS, J. – In the 1990s, the Mortgage Electronic Registration System Inc. (MERS) was established by several large players in the mortgage industry. MERS and its allied corporations maintain a private electronic registration system for tracking ownership of mortgage-related debt. This system allows its users to avoid the cost and inconvenience of the traditional public recording system and has facilitated a robust secondary market in mortgage backed debt and securities. Its customers include lenders, debt servicers, and financial institutes that trade in mortgage debt and mortgage backed securities, among others. MERS does not merely track ownership; in many states, including our own, MERS is frequently listed as the “beneficiary” of the deeds of trust that secure its customers’ interests in the homes securing the debts. Traditionally, the “beneficiary” of a deed of trust is the lender who has loaned money to the homeowner (or other real property owner). The deed of trust protects the lender by giving the lender the power to nominate a trustee and giving that trustee the power to sell the horne if the homeowner’s debt is not paid. Lenders, of course, have long been free to sell that secured debt, typically by selling the promissory note signed by the homeowner. Our deed of trust act, chapter 61.24 RCW, recognizes that the beneficiary of a deed of trust at any one time might not be the original lender. The act gives subsequent holders of the debt the benefit of the act by defining “beneficiary” broadly as “the holder of the instrument or document evidencing the obligations secured by the deed of trust.” RCW 61.24.005(2).

Judge John C. Coughenour of the Federal District Court for the Western District of Washington has asked us to answer three certified questions relating to two home foreclosures pending in King County. In both cases, MERS, in its role as the beneficiary of the deed of trust, was informed by the loan servicers that the homeowners were delinquent on their mortgages. MERS then appointed trustees who initiated foreclosure proceedings. The primary issue is whether MERS is a lawful beneficiary with the power to appoint trustees within the deed of trust act if it does not hold the promissory notes secured by the deeds of trust. A plain reading of the statute leads us to conclude that only the actual holder of the promissory note or other instrument evidencing the obligation may be a beneficiary with the power to appoint a trustee to proceed with a nonjudicial foreclosure on real property. Simply put, if MERS does not hold the note, it is not a lawful beneficiary.

The question before us–and one that homeowners and MERS are litigating under similar state laws1–is whether MERS and its members can avail themselves of Oregon’s statutory, nonjudicial foreclosure process for trust deeds. Plaintiff is a homeowner who, like many other borrowers, executed a trust deed that named MERS as the “beneficiary.” After plaintiff defaulted on her loan repayment obligation, she received a notice of trustee’s sale that identified MERS as the “beneficiary” of the sale and that asserted a power of sale under the trust deed. Plaintiff then filed this declaratory judgment and injunctive relief action to stop the trustee’s sale, arguing that, notwithstanding the labels used in the trust deed, MERS is not the “beneficiary” of the trust deed for purposes of Oregon’s nonjudicial foreclosure laws.

The trial court granted summary judgment in favor of MERS and the other defendants (the loan servicer and the trustee), ruling that MERS was the designated “beneficiary” of the trust deed and that each statutory requirement for nonjudicial foreclosure had been met–including the requirement that any assignments of the trust deed must be recorded in the county mortgage records, ORS 86.735(1). Plaintiff now appeals, again arguing that the “Oregon legislature intended the ‘beneficiary’ to be the one for whose benefit the [deed of trust] is given, which is the party who lent the money,” rather than MERS. We agree and hold that the “beneficiary” of a trust deed under the Oregon Trust Deed Act is the person designated in that trust deed as the person to whomthe underlying loan repayment obligation is owed. The trust deed in this case designates the lender, GreenPoint Mortgage Funding, Inc., as the party to whom the secured obligation is owed. And, because there is evidence that GreenPoint assigned its beneficial interest in the trust deed but did not record that assignment, the trial court erred in granting summary judgment in favor of defendants.

Black’s Law Dictionary defines a nominee as “[a] person designated to act in place of another, usually in a very limited way”.

The Mortgage Assignment

In his affidavit Hyman also asserts that, Keri Selman, the person who signed the assignment, served as an officer of both Countrywide and MERS. He appended a copy of a MERS corporate resolution which appointed all officers of Countrywide Financial Corporation as assistant secretaries and vice presidents of MERS.

Even putting aside the fact that there is no evidence that Countrywide Financial Corporation and Countrywide Home Loans Inc., are the same entity, the fact that MERS authorized Countrywide officers to act on its behalf, is not evidence of the converse. It is no evidence that Countrywide authorized MERS officers to act as officers of Countrywide. Further, the fact that Selman may have been an officer of both Countrywide and MERS does not alter the fact that she executed the assignment on behalf of MERS.

The face of the assignment indicates that MERS is assigning the mortgage as nominee of America’s Wholesale Lender (a trade name of Countrywide), and more [*3]importantly that Selman executed the assignment as assistant vice president of MERS.

Hyman’s assertion that the assignment incorrectly lists Selman’s title as assistant vice president of MERS, instead of assistant secretary and vice president of MERS, is of no relevance other than to demonstrate the casual and cavalier manner in which these transactions have been conducted.

While Hyman further asserts in his affidavit that Selman “under her authority as an Assistant Secretary and Vice president of MERS, expedited the Assignment of Mortgage process on behalf of MERS, with the approval and for the benefit of Countrywide,” he provides no evidence that Countrywide in fact approved or authorized the assignment.

Similarly, William C. Hultman, Secretary and Treasurer of MERS, states in a conclusory fashion in paragraph 8 of his affidavit that Countrywide “instructed MERS to assign the Mortgage to Bank of New York” without offering the basis for that assertion, other than it role as nominee.

Plaintiff claims, that by the terms of the mortgage MERS as nominee, was granted the right “(A) to exercise any or all of those rights, including, but not limited to the right to foreclose and sell the Property, and (B) to take any action required of the Lender including, but not limited to, releasing and canceling this Security Instrument.” However, this language is found on page two of the mortgage under the section “BORROWER’S TRANSFER TO LENDER OF RIGHTS IN THE PROPERTY” and therefore is facially an acknowledgment by the borrower. The fact that the borrower acknowledged and consented to MERS acting as nominee of the lender has no bearing on what specific powers and authority the lender granted MERS as nominee. The problem is not whether the borrower can object to the assignees’ standing, but whether the original lender, who is not before the Court, actually transferred its rights to the Plaintiff.

Furthermore, while the mortgage grants some rights to MERS it does not grant MERS the specific right to assign the mortgage. The only specific rights enumerated in the mortgage are the right to foreclose and sell the Property. The general language “to take any action required of the Lender including, but not limited to, releasing and canceling this Security Instrument” is not sufficient to give the nominee authority to alienate or assign a mortgage without getting the mortgagee’s explicit authority for the particular assignment.

The MERS Agreement

Plaintiff also argues that the agreement between MERs and its members grants MERS the authority to assign the mortgages of its members. However a reading of the MERS agreement reveals only that MERS can execute assignments on behalf of its members when directed to do so by the member or its servicer.

Plaintiff cites Rules of MERS membership, Rule 2 section 5. However what that rule requires is that a member to warrant to MERS that the mortgage either names MERS as mortgagee or that they prepare an assignment of mortgage naming MERs as mortgagee.

In this case MERS was named in paragraph (c) of the mortgage as Mortgagee of record for the purpose of recording the mortgage. Being the mortgagee of record for the [*4]purpose of recording the mortgage does not confer the right to assign the mortgage absent an instruction to do so from the lender. Paragraph 2 of the MERS terms and conditions provide that “MERS shall serve as mortgagee of record with respect to all such mortgage loans solely as a nominee in an administrative capacity”, and that “MERS agrees not to assert any rights (other than rights specified in the governing documents) with respect to such mortgage loans or mortgaged properties”. Assigning or alienating a mortgage without an explicit instruction from a lender to do so, is not acting in an administrative capacity.

Further, paragraph 6 of the terms and conditions provides that, “the MERS system is not a vehicle for creating or transferring beneficial interests in mortgage loans.” (emphasis added)

Lastly, Section 6 of the MERS agreement provides that MERS shall comply with the instructions from the holder of the notes and that in the absence of instructions from the holder may rely on instructions from the servicer with respect to transfers of beneficial ownership.

What the MERS agreements and terms and conditions provide, is that MERS may execute an assignment when instructed to do so by the lender or its servicer. This is nothing

more than saying that if granted authority by the lender, or its agent, to assign a mortgage, MERs can assign the mortgage on behalf of the lender.

To read the MERS agreement as granting MERS authority to assign any of the mortgages of its thousands of members, on its own volition, without the instruction or consent of the member would lead to a nonsensical result.

As Plaintiff has not shown that it owned the note and mortgage, it has no standing to maintain this foreclosure action. Therefore the renewed motion for an order of reference must be denied and the action dismissed.

The Court has raised the standing issue sua sponte because, in this case, it goes to the integrity of the entire proceeding. For the court to allow a purported assignee to foreclose, in the absence of some proof that the original lender authorized the assignment of the mortgage to them, would cast doubt upon the validity of the title of any subsequent purchasers, should the original lender or successor challenge the assignment at a future date.

In LaSalle Bank, N.A. v. Bouloute, No. 41583/07, 2010 WL 3359552, at *2 (N.Y. Sup. Aug. 26, 2010), the court analyzed the relationship between MERS and the original lender and concluded that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves. The court stated:

MERS… recorded the subject mortgage as “nominee” for FFFC. The word “nominee” is defined as “[a] person designated to act in place of another, usu. in a very limited way” or “[a] party who holds bare legal title for the benefit of others.” (Black’s Law Dictionary 1076 [8th ed 2004]). “This definition suggests that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves.” (Landmark National Bank v. Kesler, 289 Kan 528, 538 [2009]). The Supreme Court of Kansas, in Landmark National Bank, 289 Kan at 539, observed that:

The legal status of a nominee, then, depends on the context of the relationship of the nominee to its principal. Various courts have interpreted the relationship of MERS and the lender as an agency relationship. See In re Sheridan, 2009 WL631355, at *4 (Bankr. D. Idaho, March 12, 2009) (MERS “acts not on its own account. Its capacity is representative.”); Mortgage Elec. Registrations Systems, Inc. v. Southwest, 2009 Ark. 152 -, 301 SW3d 1, 2009 WL 723182 (March 19, 2009) (“MERS, by the terms of the deed of trust, and its own stated purposes, was the lender’s agent”); La Salle Nat. Bank v. Lamy, 12 Misc.3d 1191[A], at *2 [Sup Ct, Suffolk County 2006])… (“A nominee of the owner of a note and mortgage may not effectively assign the note and mortgage to another for want of an ownership interest in said note and mortgage by the nominee.”). LaSalle Bank, N.A. v. Bouloute, No. 41583/07, 2010 WL 3359552, at *2; see also Bank of New York v. Alderazi, 900 N.Y.S.2d 821, 823 (N.Y. Sup. Ct. 2010) (nominee is “‘[a] person designated to act in place of another, usually in a very limited way.’”) (quoting Black’s Law Dictionary)).

In LaSalle Bank, N.A. v. Bouloute the court concluded that MERS must have some evidence of authority to assign the mortgage in order for an assignment of a mortgage by MERS to be effective. Evidence of MERS’s authority to assign could be by way of a power of attorney or some other document executed by the original lender. See Bouloute, 2010 WL 3359552, at *1; Alderazi, 900 N.Y.S.2d at 823 (“‘To have a proper assignment of a mortgage by an authorized agent, a power of attorney is necessary to demonstrate how the agent is vested with the authority to assign the mortgage.’”) (quoting HSBC Bank USA, NA v. Yeasmin, 866 N.Y.S.2d 92 (N.Y. Sup. Ct. 2008)).

Other than naming MERS as “nominee”, the Mortgage also provides that the Borrower transfers legal title to the subject property to MERS, as the Lender’s nominee, and acknowledges MERS’s rights to exercise certain of the Lender’s rights under state law. This too, is insufficient to bestow any authority upon MERS to assign the mortgage. In Bank of New York v. Alderazi, the court found “[t]he fact that the borrower acknowledged and consented to MERS acting as nominee of the lender has no bearing on what specific powers and authority the lender granted MERS.” Alderazi, 900 N.Y.S.2d at 824. Even if it did bestow some authority upon MERS, the court in Alderazi found that the mortgage did not convey the specific right to assign the mortgage.

The Court agrees with the reasoning and the analysis in Bouloute and Alderazi, and the other cases cited herein and finds that the Mortgage, by naming MERS a “nominee,” and/or “mortgagee of record” did not bestow authority upon MERS to assign the Mortgage.

The MERS membership rules

According to MERS, in addition to the alleged authority granted to it in the Mortgage itself, the documentation of the Assignment of Mortgage comports with all the legal requirements of agency when read in conjunction with the overall MERS System. MERS’s argument requires that this Court disregard the specific words of the Assignment of Mortgage or, at the very least, interpret the Assignment in light of the overall MERS System of tracking the beneficial interests in mortgage securities. MERS urges the Court to look beyond the four corners of the Mortgage and take into consideration the agency relationship created by the agreements entered into by the lenders participating in the MERS System, including their agreement to be bound by the terms and conditions of membership.

MERS has asserted that each of its member/lenders agrees to appoint MERS to act as its agent. In this particular case, the Treasurer of MERS, William C. Hultman, declared under penalty of perjury that “pursuant to the MERS’s Rules of Membership, Rule 2, Section 5… First Franklin appointed MERS to act as its agent to hold the Mortgage as nominee on First Franklin’s behalf, and on behalf of First Franklin’s successors and assigns.” (Affirmation of William C. Hultman, ¶7).

However, Section 5 of Rule 2, which was attached to the Hultman Affirmation as an exhibit, contains no explicit reference to the creation of an agency or nominee relationship. Consistent with this failure to explicitly refer to the creation of an agency agreement, the rules of membership do not grant any clear authority to MERS to take any action with respect to the mortgages held by MERS members, including but not limited to executing assignments. The rules of membership do require that MERS members name MERS as “mortgagee of record” and that MERS appears in the public land records as such. Section 6 of Rule 2 states that “MERS shall at all times comply with the instructions of the holder of mortgage loan promissory notes,” but this does not confer any specific power or authority to MERS.

State law

Under New York agency laws, an agency relationship can be created by a “manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and the consent by the other to act.” Meisel v. Grunberg, 651 F.Supp.2d 98, 110 (S.D.N.Y. 2009) (citing N.Y. Marine & Gen. Ins. Co. v. Tradeline, L.L.C., 266 F.3d 112, 122 (2d Cir.2001)).

‘Such authority to act for a principal may be actual or apparent.’… Actual authority arises from a direct manifestation of consent from the principal to the agent…. The existence of actual authority ‘depends upon the actual interaction between the putative principal and agent, not on any perception a third party may have of the relationship.’

Meisel v. Grunberg, 651 F.Supp.2d at 110 (citations omitted).

Because MERS’s members, the beneficial noteholders, purported to bestow upon MERS interests in real property sufficient to authorize the assignments of mortgage, the alleged agency relationship must be committed to writing by application of the statute of frauds. Section 5-703(2) of the New York General Obligations Law states that:

An estate or interest in real property, other than a lease for a term not exceeding one year, or any trust or power, over or concerning real property, or in any manner relating thereto, cannot be created, granted, assigned, surrendered or declared, unless by act or operation of law, or by a deed or conveyance in writing, subscribed by the person creating, granting, assigning, surrendering or declaring the same, or by his lawful agent, thereunto authorized by writing.

See N.Y. Gen. Oblig. Law § 5-703(1) (McKinney 2011); Republic of Benin v. Mezei, No. 06 Civ. 870 (JGK), 2010 WL 3564270, at *3 (S.D.N.Y. Sept. 9, 2010); Urgo v. Patel, 746 N.Y.S.2d 733 (N.Y. App. Div. 2002) (finding that unwritten apparent authority is insufficient to satisfy the statute of frauds) (citing Diocese of Buffalo v. McCarthy, 91 A.D.2d 1210 (4th Dept. 1983)); see also N.Y. Gen. Oblig. Law § 5-1501 (McKinney 2011) (“‘agent’ means a person granted authority to act as attorney-in-fact for the principal under a power of attorney…”). MERS asks this Court to liberally interpret the laws of agency and find that an agency agreement may take any form “desired by the parties concerned.” However, this does not free MERS from the constraints of applicable agency laws.

The Court finds that the record of this case is insufficient to prove that an agency relationship exists under the laws of the state of New York between MERS and its members. According to MERS, the principal/agent relationship among itself and its members is created by the MERS rules of membership and terms and conditions, as well as the Mortgage itself. However, none of the documents expressly creates an agency relationship or even mentions the word “agency.” MERS would have this Court cobble together the documents and draw inferences from the words contained in those documents. For example, MERS argues that its agent status can be found in the Mortgage which states that MERS is a “nominee” and a “mortgagee of record.” However, the fact that MERS is named “nominee” in the Mortgage is not dispositive of the existence of an agency relationship and does not, in and of itself, give MERS any “authority to act.” See Steinbeck v. Steinbeck Heritage Foundation, No. 09-18360cv, 2010 WL 3995982, at *2 (2d Cir. Oct. 13, 2010) (finding that use of the words “attorney in fact” in documents can constitute evidence of agency but finding that such labels are not dispositive); MERS v. Saunders, 2 A.3d 289, 295 (Me. 2010) (designation as the ‘mortgagee of record’ does not qualify MERS as a “mortgagee”). MERS also relies on its rules of membership as evidence of the agency relationship. However, the rules lack any specific mention of an agency relationship, and do not bestow upon MERS any authority to act. Rather, the rules are ambiguous as to MERS’s authority to take affirmative actions with respect to mortgages registered on its system.

In addition to casting itself as nominee/agent, MERS seems to argue that its role as “mortgagee of record” gives it the rights of a mortgagee in its own right. MERS relies on the definition of “mortgagee” in the New York Real Property Actions and Proceedings Law Section 1921 which states that a “mortgagee” when used in the context of Section 1921, means the “current holder of the mortgage of record… or their agents, successors or assigns.” N.Y. Real Prop. Acts. L. § 1921 (McKinney 2011). The provisions of Section 1921 relate solely to the discharge of mortgages and the Court will not apply that definition beyond the provisions of that section in order to find that MERS is a “mortgagee” with full authority to perform the duties of mortgagee in its own right. Aside from the inappropriate reliance upon the statutory definition of “mortgagee,” MERS’s position that it can be both the mortgagee and an agent of the mortgagee is absurd, at best.

Adding to this absurdity, it is notable in this case that the Assignment of Mortgage was by MERS, as nominee for First Franklin, the original lender. By the Movant’s and MERS’s own admission, at the time the assignment was effectuated, First Franklin no longer held any interest in the Note. Both the Movant and MERS have represented to the Court that subsequent to the origination of the loan, the Note was assigned, through the MERS tracking system, from First Franklin to Aurora, and then from Aurora to U.S. Bank. Accordingly, at the time that MERS, as nominee of First Franklin, assigned the interest in the Mortgage to U.S. Bank, U.S. Bank allegedly already held the Note and it was at U.S. Bank’s direction, not First Franklin’s, that the Mortgage was assigned to U.S. Bank. Said another way, when MERS assigned the Mortgage to U.S. Bank on First Franklin’s behalf, it took its direction from U.S. Bank, not First Franklin, to provide documentation of an assignment from an entity that no longer had any rights to the Note or the Mortgage. The documentation provided to the Court in this case (and the Court has no reason to believe that any further documentation exists), is stunningly inconsistent with what the parties define as the facts of this case.

However, even if MERS had assigned the Mortgage acting on behalf of the entity which held the Note at the time of the assignment, this Court finds that MERS did not have authority, as “nominee” or agent, to assign the Mortgage absent a showing that it was given specific written directions by its principal.

This Court finds that MERS’s theory that it can act as a “common agent” for undisclosed principals is not support by the law. The relationship between MERS and its lenders and its distortion of its alleged “nominee” status was appropriately described by the Supreme Court of Kansas as follows: “The parties appear to have defined the word [nominee] in much the same way that the blind men of Indian legend described an elephant-their description depended on which part they were touching at any given time.” Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 166-67 (Kan. 2010).

Excerpt:MERS asserts that Plaintiff has not shown an unfair or deceptive practice on its part, has not shown how any act of MERS impacts the public interest, and presents nothing showing injuries caused by an unfair or deceptive practice by MERS. The Court disagrees. Like her other claims arising under the Deed of Trust Act, Plaintiff’s CPA claims depend on whether MERS may be the beneficiary (or nominee of the beneficiary) under Washington state law. MERS’s attempt to serve as the beneficiary may have been improper under state law and it may have led to widespread confusion regarding home ownership, payment delivery, and negotiable positions. If MERS violated state law, its conduct may very well be classified as “unfair” under the CPA. There is no doubt that MERS’s conduct impacts the public interest.SeeHangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 719 P.2d 531, 537-38 (Wash. 1986)(listing factors for determining public interest); Peterson, supra, at 1362 (“Although MERS is a young company, 60 million mortgage loans are registered on its system.”); R. K. Arnold, Yes, There Is Life on MERS, 11 Prob. & Prop. 32, 33 (1997) (“Some have called MERS the most significant event for the mortgage industry since the formation of Fannie Mae and Freddie Mac. Others have compared it to the creation of uniform mortgage instruments, which have become standard throughout the residential mortgage industry. This suggests that the journey to MERS will have a tremendous effect on the mortgage industry.”). And the harm Plaintiff may have suffered because of MERS’s conduct may include expending resources to avert an unlawful foreclosure and preventing Plaintiff from identifying the real beneficiary and negotiating a new arrangement to avoid foreclosure.

<SNIP>

III. CONCLUSION

Plaintiff admits that she has been delinquent in her mortgage payments. A ruling favorable to Plaintiff in this case and others like it cannot and should not create a windfall for all homeowners to avoid upholding their end of the mortgage bargain—paying for their homes. But a homeowner’s failure to make payments cannot grant lenders, trustees, and so-called beneficiaries like MERS license to ignore state law and foreclose using any means necessary. Whether these and similar defendants complied with Washington state law remains unclear.

Gomes also relied upon the borrower’s acknowledgement of MERS’ authority to foreclose as nominal beneficiary. Gomes, 192 Cal. App. 4th at 1157-58; see also Pantoja, 640 F. Supp. 2d at 1189- 90. Even if US Bank had not replaced MERS as the foreclosing beneficiary by the time of the foreclosure here, MERS still had no authority to nonjudicially foreclose under Salazar’s DOT under its express terms. The Lender, not MERS, had the right to “invoke the power of sale” under the DOT, ‘l[ 13 22, here. This acknowledgement of MERS’ authority also did not extend so far as to permit it to foreclose. Salazar’s acknowledgement was limited to the situation where MERS’ enforcement actions were “necessary to comply with law or custom” (emphasis added). Whatever “necessary to comply with law or custom” means, and there is no evidence in the record to explain it, it should not mean that US Bank or MERS can contract away their obligations to comply with the foreclosure statutes.12

Ownership of Promissory Notes or Mortgage Indebtedness

MERS is never the owner of the promissory note for which it seeks foreclosure.

MERS has no legal or beneficial interest in the promissory note underlying the security instrument for which it serves as “nominee”.

MERS has no legal or beneficial interest in the loan instrument underlying the security instrument for which it serves as “nominee”

MERS has no legal or beneficial interest in the mortgage indebtedness underlying the security instrument for which it serves as “nominee”.

MERS has no interest at all in the promissory note evidencing the mortgage indebtedness.

MERS is not a party to the alleged mortgage indebtedness underlying the security instrument for which it serves as “nominee”.

MERS has no financial or other interest in whether or not a mortgage loan is repaid.

MERS is not the owner of the promissory note secured by the mortgage and has no rights to the payments made by the debtor on such promissory note.

MERS does not make or acquire promissory notes or debt instruments of any nature and therefore cannot be said to be acquiring mortgage loans.

MERS has no interest in the notes secured by mortgages or the mortgage servicing rights related thereto.

MERS does not acquire any interest (legal or beneficial) in the loan instrument (i.e., the promissory note or other debt instrument).

MERS has no rights whatsoever to any payments made on account of such mortgage loans, to any servicing rights related to such mortgage loans, or to any mortgaged properties securing such mortgage loans.

The note owner appoints MERS to be its agent to only hold the mortgage lien interest, not to hold any interest in the note.

MERS does not hold any interest (legal or beneficial) in the promissory notes that are secured by such mortgages or in any servicing rights associated with the mortgage loan.

The debtor on the note owes no obligation to MERS and does not pay MERS on the note.

Beneficial Interest in the Mortgage Indebtedness

MERS holds legal title to the mortgage for the benefit of the owner of the note.

The beneficial interest in the mortgage (or person or entity whose interest is secured by the mortgage) runs to the owner and holder of the promissory note and/or servicing rights thereunder.

MERS has no interest at all in the promissory note evidencing the mortgage loan.

MERS does not acquire an interest in promissory notes or debt instruments of any nature.

The beneficial interest in the mortgage (or the person or entity whose interest is secured by the mortgage) runs to the owner and holder of the promissory note (NOT MERS).

MERS’ Rights To Control the Foreclosure

MERS must all times comply with the instructions of the holder of the mortgage loan promissory notes.

MERS only acts when directed to by its members and for the sole benefit of the owners and holders of the promissory notes secured by the mortgage instruments naming MERS as nominee owner.

In 1989, Brian Hershkowitz developed the “Whole Loan Book Entry” concept while serving as a director for the Mortgage Bankers Association (MBA). In 1990, he first introduced this concept to seven different industry groups; Document Custodian, Originators, Servicers, Title Insurers, County Recorders, Government Sponsored Enterprises (GSE’s) and Warehouse/Interim Lenders. The reception was very positive and it was viewed as a very useful recording system to be used for how equity and debt securities could be identified and managed.

In 1991, Mr. Hershkowtiz published Farming It Out in Mortgage Banking Magazine. His main discussion in this article is primarily about getting the opinion of the experts in the technology outsourcing service industry. In 1992, Mr. Hershkowitz published another article called Cutting Edge Solutions in Mortgage Banking Magazine. In this particular article he mentions the actual meeting that took place at the Mortgage Bankers Association of America (MBA) headquarters with many key players that are known today as some of MERSCORP’s shareholders, such as, Fannie Mae and Freddie Mac. In this meeting they discussed a “System” that will bring changes in mortgage records.

Mr. Hershkowitz went on to become President and COO of LandSafe Credit, a leading settlement service provider that was a subsidiary of Countrywide. Mr. Hershkowitz also spent several years serving Countrywide in the areas of strategic planning and executive management.

In 2001, Mr. Hershkowitz became Executive Vice President at Fidelity National Information Services (FNIS) and President of its mortgage and information services division. His responsibilities included management of the Company’s data offerings, including public records information, credit reporting information, flood hazard compliance data, real estate tax information and collateral valuation services. He left FNIS in November of 2006 to become Chief Executive Officer of Maximum Value Group, a consulting firm focused on providing advice to private equity and other market participants in the area of banking and mortgages.

MERS was founded by the mortgage industry. MERS tracks “changes” in the ownership of the beneficial and servicing interests of mortgage loans as they are bought and sold among MERS members or others. Simultaneously, MERS acts as the “mortgagee” of record in a “nominee” capacity (a form of agency) for the beneficial owners of these loans.

To ensure widespread acceptance within the industry, MERS sought to have security instruments modified to contain MERS as the original mortgagee (MOM) language. MERS began to change decades of business practices after the two biggest mortgage funders in the U.S. the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Ferderal National Mortgage Association (Fannie Mae) modified their Uniform Security Instruments to include MOM language. Their approval opened the doors to incorporate MERS into loans at origination.

Soon after, U.S. government agencies like the Veterans Administration, Federal Housing administration and Government National Mortgage Association (Ginne Mae), and several state housing agencies followed both Fannie/Freddie to approve MERS.

More than 60 percent of all newly-originated mortgages are registered in MERS. Its mission is to register every mortgage loan in the United States on the MERS System. Since 1997, more than 65 million home mortgages have been assigned a Mortgage Identification Number (MIN) and have been registered on the MERS System.

The mortgage-backed security (MBS) sector tested the viability of MERS because a substantial number of mortgages are securitized in the secondary market. In February 1999, Lehman Brothers was the first company to include MERS registered loans in a MBS.

Moody’s Investor Service issued an independent Structured Finance special report on MERS and it’s impact of MBS transactions and found that where the securitzer used MERS, new assignments of mortgages to the trustee of MBS transactions were not necessary.

Since MERS is a privately owned data system and not public, all mortgages and assignments must be recorded in order to perfect a lien. Since they failed to record assignments when these loans often traded ownership several times before any assignment was created, the legal issue is apparent. MERS may have destroyed the public land records by breaking the chain of title to millions of homes.

IN MERS CEO’S OWN WORDS

In or around the summer of 1997, MERSCORP President and CEO R.K. Arnold wrote, “Yes, There is life on MERS” Mr. Arnold stated, “Some county recorders have expressed concerns that MERS will eliminate their offices nationwide or destroy the public land records by breaking the chain of title. As implemented, MERS will not create a break in the chain of title, and, because MERS is premised on an assignment recorded in the public land records, MERS cannot work without county recorders.”

In this same article Mr. Arnold also states “The sheer volume of transfers between servicing companies and the resulting need to record assignments caused a heavy drag on the secondary market. Loan servicing can trade several times before even the first assignment in a chain is recorded, leaving the public land records clogged with unnecessary assignments. Sometimes these assignments are recorded in the wrong sequence, clouding title to the property”. Mr. Arnold never mentions the fact that the mortgage notes have been securitized, thereby becoming “negotiable securities” under the Uniform Commercial Code.

In an interview for The New York Times, Mr. Arnold said, “that his company had benefited not only banks, but also millions of borrowers who could not have obtained loans without the money-saving efficiencies MERS brought to the mortgage trade.”

Mr. Arnold went on to say that, ” far from posing a hurdle for homeowners, MERS had helped reduce mortgage fraud and imposed order on a sprawling industry where, in the past, lenders might have gone out of business and left no contact information for borrowers seeking assistance.”

“We’re not this big bad animal,” Mr. Arnold said. “This crisis that we’ve had in the mortgage business would have been a lot worse without MERS.”

Unfortunately, even a simple search in the Florida Land Records proves the opposite to be the case. Researchers have easily found affidavits of lost assignments actually stating, “the said mortgage was assigned to Mortgage Electronic Registration Systems, Inc., from “XXXXXXX”, the original of the said assignment to Mortgage Electronic Registration Systems, Inc., was lost, misplaced or destroyed before same could be placed of record with the Florida Land Records County Clerk’s office; That, “XXXXXXX”, it’s successors and/or assignee is no longer in business/or do not respond to our request for a duplicate assignment, and therefore, a duplicate original of said assignment cannot be obtained.”

According to affidavits such as these, not only have the borrowers lost contact with the lenders, but the same is true that MERS did as well.

Yet again, researchers have easily located affidavits recorded in the Florida Land Records stating “That said Deed of Trust has not been assigned to any other party and that MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, Inc. is the current holder and owner of the Note and Deed of Trust in question.”

NO. THERE’S NO LIFE AT MERS

Aside from not recording assignments, Mr. Arnold failed to mention that the certifying officers given authority to execute sensitive loan documents would not be paid employees of MERS. This raises the critical legal question as to how one can act as a certified officer and execute any equitable interest on behalf of any security instruments without being an employee of MERS.

Q Do the assistant secretaries — first off, are
you a salaried employee of MERS?
A No.

Q Are you a salaried employee of MERS Corp,
Inc.?
A Yes.

Q Are any of the employees of MERS, Inc.
salaried employees?
A I don’t understand your question.

Q Does anyone get a paycheck, if they are an
employee of MERS, Inc., do they get a paycheck from
Mercer, Inc.?
A There is no MERS, Inc.

Q I thought, sir, there’s a company that was
formed January 1, 1999, Mortgage Electronic Registration
Systems, Inc. Does it have paid employees?
A No, it does not.

Q Does it have employees?
A No.

Q Does MERS have any employees?
A Did they ever have any? I couldn’t hear you.

Q Does MERS have any employees currently?
A No.

Q In the last five years has MERS had any
employees?
A No.

<SNIP>

Q How many assistant secretaries have you
appointed pursuant to the April 9, 1998 resolution; how
many assistant secretaries of MERS have you appointed?
A I don’t know that number.

Q Approximately?
A I wouldn’t even begin to be able to tell you
right now.

Q Is it in the thousands?
A Yes.

Q Have you been doing this all around the
country in every state in the country?
A Yes.

Q And all these officers I understand are unpaid
officers of MERS?
A Yes.

Q And there’s no live person who is an employee
of MERS that they report to, is that correct, who is an employee?
A There are no employees of MERS.

If so, how does anyone have any authority to sign security instruments encumbered by any loan documents, if these certifying officers are not paid employees and never attend corporate meetings in the capacity as Vice President, Assistant Secretary, etc. with Mortgage Electronic Registration System, Inc..

COURTS FIND ISSUES WITH MERS

Federal and state judges across America are realizing that the mortgage industry’s nominee is backfiring.

In Mr. Arnold’s own words, “For these servicing companies to perform their duties satisfactorily, the note and mortgage were bifurcated. The investor or its designee held the note and named the servicing company as mortgagee, a structure that became standard.” What has become a satisfactory standard structure for the mortgage industry has not been found by many courts to be legally sufficient to foreclose upon the property.

Again, MERS only acts as nominee for the mortgagee of record for any mortgage loan registered on the computer system MERS maintains, called the MERS System. MERS cannot negotiate a security instrument. Therefore, MERS certifying officers cannot have legal standing to assign what MERS does not own or hold.

The Supreme Court of New York Nassau County:Bank of New York Mellon V. Juan Mojica Index No: 26203/09
Justice Thomas A. Adams stated, “Not only has plaintiff failed to establish MERS’ right as a nominee for purposes of recording to assign the mortgage, more importantly, no effort has been made to establish the authority of MERS, a non-party to the note, to transfer its ownership.”

The Supreme Court of Maine:Mortgage Electronic Registration Systems, Inc. v. Saunders, No. 09-640, 2010 WL 3168374, (Me. August 12, 2010) The Court explains that the only rights conveyed to MERS in either the Saunders’ mortgage or the corresponding promissory note are bare legal title to the property for the sole purpose of recording the mortgage and the corresponding right to record the mortgage with the Registry of Deeds. This comports with the limited role of a nominee. A nominee is a “person designated to act in place of another, usu[ally] in a very limited way,” or a “party who holds bare legal title for the benefit of others or who receives and distributes funds for the benefit of others.” Black’s Law Dictionary 1149 (9th ed. 2009).

In Hawkins, No. BK-S-07-13593-LBR, 2009 WL 901766
The Court found that the deed of trust “attempts to name MERS as both beneficiary and a nominee” but held that MERS was not the beneficiary, as it had “no rights whatsoever to any payments, to any servicing rights, or to any of the properties secured by the loans.”

In Re: Walker, Case No. 10-21656-E-11– Eastern District of CA Bankruptcy court rules MERS has NO actionable interest in title. “Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law.” “MERS could not, as a matter of law, have transferred the note to Citibank from the original lender, Bayrock Mortgage Corp.” The Court’s ruled that MERS and Citibank are not the real parties in interest.

In re Vargas, 396 B.R. at 517-19. Judge Bufford found that the witness called to testify as to debt and default was incompetent. All the witness could testify was that he had looked at the MERS computerized records. The witness was unable to satisfy the requirements of the Federal Rules of Evidence, particularly Rule 803, as applied to computerized records in the Ninth Circuit. See id. at 517-20. “The low level employee could really only testify that the MERS screen shot he reviewed reflected a default. That really is not much in the way of evidence, and not nearly enough to get around the hearsay rule.”

FRAUD ON THE COURT

In US Bank v. Harpster the Law Offices Of David J. Stern committed fraud on the court by the evidence based on the Assignment of Mortgage that was created and notarized on December 5, 2007. However, that purported creation/notarization date was facially impossible: the stamp on the notary was dated May 19, 2012. Since Notary commissions only last four years in Florida (see F .S. Section 117.01 (l)), the notary stamp used on this instrument did not even exist until approximately five months after the purported date on the Assignment.

The Court specifically finds that the purported Assignment did not exist at the time of filing of this action; that the purported Assignment was subsequently created and the execution date and notarial date were fraudulently backdated, in a purposeful, intentional effort to mislead the Defendant and this Court. The Court rejects the Assignment and finds that is not entitled to introduction in evidence for any purpose. The Court finds that the Plaintiff does not have standing to bring its action.

The Court dismissed this case with prejudice.

In Duval County, Florida another foreclosure case was dismissed with prejudice for fraud on the court. In JPMorgan V. Pocopanni, the Court found that Fishman & Shapiro representing JPMorgan had actual knowledge at all times that the Complaint, the Assignment, and the Motion for Substitution were all false. The Court found that by clear and convincing evidence WAMU, Chase and Shapiro & Fishman committed fraud on this court.

On August 10, 2010 Florida attorney general Bill McCollum announced that he is investigating three foreclosure law firms for allegedly providing fraudulent assignments and affidavits relating in foreclosure cases.

In a deposition taken in December 2009, GMAC employee Jeffrey Stephan said he signed 10,000 affidavits or similar documents a month without personally verifying who the mortgage holder was. That means many foreclosures could have taken place based on false documentation and many homes may have been unlawfully foreclosed on.

On September 20, 2010, GMAC halted foreclosures in 23 different states. Two of the three firms being investigated by the Florida attorney general, the Law Office of Marshall C. Watson and the Law Offices of David J. Stern PA, have represented GMAC in foreclosure proceedings.

This is not limited to only GMAC Mortgage. There are many hundreds of thousands of these same documents that are being created by many foreclosure law firms across the nation.

University of Utah law professor Christopher L. Peterson has raised the issue that MERS should be regarded as a debt collector. He argues that some of MERS’ methods are just the sort of deceptive practices that ought to be regulated under The Fair Debt Collection Practices Act (FDCPA), 15 U. S. C. §1692(a),(j).

CONCLUSION

Finally in May, 2009, Mr. Arnold said in Mortgage Technology Magazine, “Every system in the mortgage industry can switch MERS registry on or off at will,” referencing that both the Obama administration and Congressional leaders are aware of this.

President Obama and Congressional leaders it is time to permanently switch MERS lifeless device off!

Not until MERS became the primary focus for challenges to legal standing in foreclosure courts as reported by the alternative media, have the main stream media and the mortgage industry have begun to realize that property records cross the United States have become totally unreliable.

It has taken more than a decade for the courts to recognize that MERS has become a mortgage backfire system leaving clouded titles in over 65 million loans since 1997.

Courts across the nation must comply with the law. Any documents submitted to the courts regarding property ownership should be assumed to be nothing but smoke in a mirror.